The Internal Revenue Service (IRS) has recently announced a new tax credit designed to encourage businesses to retain their employees amid the ongoing pandemic. The employee retention credit (ERC) was first introduced in the CARES Act of 2020 and has now been extended under the Consolidated Appropriations Act of 2021.
The ERC is a refundable tax credit that can be claimed by eligible employers who have retained their employees during the pandemic. The credit is equal to 70% of qualified wages up to $10,000 per employee per quarter, which translates to a maximum credit of $7,000 per employee per quarter.
To be eligible for the ERC, employers must have experienced a significant decline in gross receipts or were fully or partially suspended due to a government order during the pandemic. For 2021, employers can qualify for the ERC if they experienced a decline in gross receipts of 20% or more compared to the same quarter in 2019. Employers can also qualify if they were fully or partially suspended by a government order during the pandemic.
The ERC is a valuable tool for businesses struggling to keep their doors open during the pandemic. By incentivizing employee retention, the credit helps businesses retain valuable talent and maintain continuity in their operations. It also provides a much-needed financial boost for businesses struggling to pay their bills and meet payroll obligations.
The ERC has already proven to be popular among businesses, with over 90,000 employers claiming the credit as of February 2021. With the recent extension of the ERC through December 31, 2021, even more businesses are expected to take advantage of this tax credit in the coming months.
The IRS has provided guidance and resources to help employers understand and claim the ERC. Employers can use Form 941, Employer’s Quarterly Federal tax Return, to claim the credit or may be able to request an advance payment of the credit by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
In conclusion, the new employee retention credit introduced by the IRS is a valuable resource for businesses struggling to keep their doors open and retain valuable employees during the pandemic. With its extension through the end of 2021, even more businesses are expected to take advantage of this tax credit in the coming months, providing much-needed financial relief and stability for both employers and their employees.