As businesses continue to be affected by the ongoing pandemic, the government has introduced several relief measures to help them stay afloat. One such measure is the employee retention tax credit Program. If you are a business owner or employer who has been impacted by the pandemic, you might be eligible to claim this tax credit. In this article, we will provide you with a step-by-step guide on how to claim the employee retention tax credit Program.
Step 1: Determine if you are eligible
To claim the employee retention tax credit, the business or employer must meet certain criteria. The eligibility criteria include:
– The business must have been fully or partially suspended due to government orders related to COVID-19 or have experienced a significant decline in gross receipts (more than 50% compared to the same quarter in the previous year).
– The business must have had an average of 500 or fewer full-time employees in 2019.
– The business must not have received a Paycheck Protection Program (PPP) loan.
If your business meets the above criteria, you are eligible to claim the employee retention tax credit.
Step 2: Calculate the tax credit
The employee retention tax credit is a refundable tax credit of up to 70% of wages paid to employees from March 13, 2020, through December 31, 2021. The maximum credit per employee is $14,000, and the credit is capped at $7,000 per employee per quarter.
To calculate the tax credit, determine the total amount of qualified wages paid to employees during the eligible period and then multiply it by the applicable percentage (either 50% or 70%, depending on the quarter).
Step 3: File Form 941
To claim the employee retention tax credit, you must file Form 941, Employer’s Quarterly Federal tax Return, with the Internal Revenue Service (IRS). On this form, you will report the amount of wages paid to employees and the amount of tax credit claimed.
If the amount of tax credit you are claiming exceeds the employer’s share of social security tax for the quarter, you can request an advance payment of the credit using Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Step 4: Retain relevant records
It is important to retain all relevant records related to the employee retention tax credit. These records should include:
– The amount of qualified wages paid to employees.
– The number of full-time equivalent employees during the period.
– Documentation showing that the business or employer was fully or partially suspended due to government orders or experienced a significant decline in gross receipts.
– The amount of tax credit claimed.
– The amount of any advance payments received.
By retaining these records, you can support your claim for the tax credit if the IRS requests additional information.
In conclusion, the employee retention tax credit Program is a valuable relief measure for businesses affected by the pandemic. By following the above steps, you can claim the tax credit and get the much-needed financial support for your business. Ensure you meet the eligibility criteria, calculate the tax credit correctly, file Form 941, and retain relevant records to support your claim.