As a small business owner, you are always looking for ways to improve your bottom line. One often overlooked way to do this is through the employee retention tax credit (ERTC). This credit was created to help businesses keep their employees employed during the pandemic, but it can also be used to reduce your business’s tax liability and increase your profits.
What is the employee retention tax credit?
The employee retention tax credit is a refundable tax credit that is available to eligible employers who kept their employees on payroll during the pandemic. The credit is equal to 50% of qualified wages paid to employees between March 13, 2020, and December 31, 2021. The maximum credit per employee is $7,000 per calendar quarter, and the maximum credit per employer is $28,000 per employee per year.
Who is eligible for the employee retention tax credit?
To be eligible for the employee retention tax credit, your business must have experienced one of two things:
1. A full or partial suspension of operations due to a government order related to COVID-19.
2. A significant decline in gross receipts. This means that your gross receipts in a quarter were less than 80% of your gross receipts in the same quarter in 2019. Once your revenues recover to a certain level, the credit is phased out.
How can you maximize your employee retention tax credit?
1. Keep good records.
To claim the ERTC, you need to keep detailed records of your eligible expenses and the number of employees retained. This includes payroll records, tax forms, and financial statements. If you’re not sure what records you need to keep, consult with an accountant or tax professional.
2. Claim the credit retroactively.
The ERTC is retroactive, which means that if you were eligible for the credit in 2020 but didn’t claim it, you can still do so now. This could mean a significant refund for your business.
3. Hire more employees.
The more employees you have on payroll, the more eligible wages you can claim for the credit. So, if your business is in a position to hire more staff, it may be worth doing so to maximize your ERTC.
4. Plan ahead.
The ERTC is set to expire at the end of 2021, but there may be additional opportunities for credits in the future. To maximize your tax benefits, plan ahead and stay informed about changes to tax laws and credits.
Conclusion:
The employee retention tax credit can be a valuable tool for small businesses looking to maximize their profits. By keeping good records, claiming the credit retroactively, hiring more employees, and planning ahead, you can make the most of this tax benefit and boost your bottom line. Consult with an accountant or tax professional to ensure that you’re eligible for the credit and to maximize your tax savings.