As a business owner, one of the biggest challenges you face is retaining your skilled employees. Staff turnover can cost your company thousands of dollars in recruitment and training expenses, not to mention the disruption it can cause to your operations. Luckily, there is a powerful incentive offered by the government to help you retain your employees and drive growth in your business: the employee retention tax credit (ERTC).
What is the employee retention tax credit?
The ERTC is a tax credit that allows eligible employers to claim up to 70% of qualified wages paid to employees between March 13, 2020 and December 31, 2021. The maximum credit amount is $7,000 per employee per quarter, which means that an employer can potentially claim up to $28,000 per employee for the entire credit period. The credit is applied towards the employer’s share of Social Security taxes.
Who is eligible for the employee retention tax credit?
To be eligible for the ERTC, your business must meet one of two qualifications:
1. Your business operations were fully or partially suspended during any calendar quarter due to a government order related to COVID-19, OR
2. Your business experienced a significant decline in gross receipts in any calendar quarter when compared to the same quarter in 2019. A significant decline is defined as when your gross receipts are less than 50% of the gross receipts from the same quarter in 2019.
If your business meets either of these qualifications, you may be eligible to claim the ERTC. You must also have fewer than 500 full-time employees.
How can the employee retention tax credit drive growth in your business?
The ERTC can help your business in several ways:
1. Retaining skilled employees: The tax credit provides a financial incentive to retain your employees, which can reduce staff turnover and the costs associated with recruitment and training new employees.
2. Improving cash flow: The ERTC is a refundable tax credit, which means that if the credit amount exceeds the employer’s share of Social Security taxes for the quarter, the excess can be refunded to the employer. This can improve cash flow for your business.
3. Investing in growth: By retaining your skilled employees and improving your cash flow, you can reinvest the savings back into your business to drive growth and expansion.
How can you claim the employee retention tax credit?
To claim the ERTC, you must file IRS Form 941 with the IRS each quarter. The ERTC is claimed as a credit against the employer’s share of Social Security taxes on wages paid to employees. If the credit amount exceeds the employer’s share of Social Security taxes for the quarter, the excess can be refunded to the employer.
It’s important to note that you cannot claim the ERTC and the Paycheck Protection Program (PPP) loan at the same time. If you received a PPP loan, you can still claim the ERTC for wages that are not paid with the PPP loan funds.
In conclusion, the employee retention tax credit is a valuable tool for businesses looking to retain their skilled employees and invest in growth. By staying informed about the eligibility requirements and how to claim the credit, you can take advantage of this opportunity to drive growth in your business.