The IRS has recently announced that a new tax credit is now available for businesses to help retain their employees amidst the COVID-19 pandemic. The new credit, called the employee retention credit, allows businesses to receive a credit of up to $5,000 per employee.
The employee retention credit was introduced as part of the CARES Act, which was signed into law in March 2020. The credit is available to businesses that have experienced a significant decline in revenue as a result of the pandemic but have continued to pay their employees.
To qualify for the credit, businesses must meet certain criteria, including experiencing a decline in revenue of at least 50% compared to the same quarter in the previous year. The credit is also limited to businesses with less than 500 employees.
The credit is calculated as 50% of qualified wages that were paid to employees between March 12, 2020, and December 31, 2020. The maximum credit amount is $5,000 per employee for the entire credit period.
Businesses can claim the credit by filing Form 941, which is the employer’s quarterly tax return. If the credit exceeds the amount of the employment taxes owed, businesses can receive a refund for the difference.
The employee retention credit is a great opportunity for businesses that are struggling to retain employees during these uncertain times. It provides a financial incentive to keep employees on the payroll, even if revenue has declined significantly.
However, businesses should be aware that claiming the credit may have implications for other relief programs, such as the Paycheck Protection Program. Businesses cannot claim the credit if they have received a PPP loan, and claiming the credit may affect the amount of forgiveness they can receive for their PPP loan.
Overall, the employee retention credit is a valuable resource for businesses that are struggling to retain employees during the COVID-19 pandemic. It provides a financial incentive to keep paying employees, which can help businesses stay afloat during these uncertain times. However, businesses should be aware of the implications of claiming the credit and should consult with a tax professional to ensure they are eligible and maximizing their benefits under the program.