Don’t Miss the Deadline: How to Maximize employee retention credit for 2021
The COVID-19 pandemic has disrupted businesses in various ways, causing economic uncertainty and forcing many companies to implement cost-saving measures. One such measure is the employee retention credit (ERC), a refundable tax credit that incentivizes employers to keep their employees on the payroll during the pandemic. However, many businesses have failed to take full advantage of this credit. As we approach the deadline for claiming the 2021 ERC, it’s important for organizations to understand how they can maximize their benefits.
The ERC was introduced as part of the CARES Act in 2020 to help struggling businesses retain their employees during the pandemic. Initially, it provided a credit of up to $5,000 per employee for the entire year of 2020. However, in 2021, the credit was expanded and increased, allowing eligible employers to claim up to $7,000 per employee per quarter.
To qualify for the ERC in 2021, businesses must meet certain criteria. Firstly, they must have experienced a significant decline in gross receipts, with a decline of at least 20% compared to the same quarter in 2019. Alternatively, if the business was not in operation during the first or second quarter of 2019, they can compare their gross receipts to the same quarter in 2020.
Additionally, businesses can also qualify for the ERC if they had to fully or partially suspend operations due to government orders related to the COVID-19 pandemic. For example, if a business had to close its doors temporarily or reduce working hours, they may be eligible for the credit.
To maximize the ERC for 2021, businesses should consider the following strategies:
1. Review eligibility criteria: Ensure that your business meets the requirements for the ERC. Consult with a tax professional or HR specialist to determine your eligibility.
2. Evaluate quarterly eligibility: The eligibility for ERC is determined on a quarterly basis. Even if your business did not qualify in the previous quarters, you might meet the criteria in the later part of the year. Stay updated on your company’s financials and evaluate quarterly eligibility accordingly.
3. Revisit payroll costs: The ERC is calculated based on qualified wages paid to eligible employees. Review your payroll records to identify employees who meet the eligibility criteria and who can help maximize your credit.
4. Consider employee retention: While the ERC is primarily focused on retaining employees during the pandemic, businesses might explore retaining additional employees to maximize the credit. This could involve rehiring or hiring new employees who can contribute to the business’s operations and help meet the eligibility requirements.
5. Seek professional advice: Understanding and maximizing the ERC can be complex. Engage with a tax advisor who specializes in tax incentives and credits. They can guide you through the process, help you identify potential pitfalls, and ensure that you maximize your benefits.
It’s crucial to note that the deadline for claiming the 2021 ERC is fast approaching. Businesses must file their applicable tax returns, such as Form 941, in a timely manner to claim the credit. Delays can result in missed opportunities and loss of potential benefits.
In conclusion, the employee retention credit is a valuable tool that can help businesses navigate the challenges posed by the pandemic. By staying informed about the eligibility criteria, evaluating quarterly eligibility, reviewing payroll costs, considering employee retention, and seeking professional advice, organizations can maximize their benefits. The clock is ticking, so don’t miss the deadline – ensure that your business takes advantage of the employee retention credit for 2021.