The coronavirus has hit small businesses hard. With the pandemic still raging, most companies are struggling to maintain profitability, which results in declining revenue and reduced hours or layoffs for employees. As part of the CARES act, the IRS is offering an employee retention tax credit to help companies keep their employees on the payroll.
The employee retention tax credit is a refundable Federal tax credit that is intended to help businesses retain their employees during the COVID-19 pandemic. This credit is available to all eligible employers who have been affected by COVID-19 and have experienced a significant decline in gross receipts or have been forced to shut down entirely.
To be eligible for the employee retention tax credit, a business must have undergone a significant decline in gross receipts or have been forced to close entirely as a result of COVID-19. This decline must have occurred between March 12th and December 31st of 2020. Based on the IRS’ regulations, the decline in gross receipts that qualifies a business for this credit is as follows:
– A gross receipts decline of at least 50% in one calendar quarter of 2020, compared to that same quarter in the previous year.
– The business operations have been fully terminated due to a Government mandate.
If a business does meet the eligibility criteria for the employee retention tax credit, they are eligible to receive up to $5,000 per employee retained. The credit is available for any employee that a business retains during the pandemic. This credit is calculated as 50% of the qualified wages paid to employees during this period.
Businesses may claim the credit on their quarterly tax returns. Any excess credits above taxes owed will be refunded to the business. For companies with fewer than 500 employees, the credit is refundable up to 100% of the qualified wages paid. Larger companies, on the other hand, can claim it only for the wages paid to employees who are not providing services.
This tax credit is intended to be a financial lifeline for businesses, helping them to continue operating while also ensuring that their employees stay on the payroll. By helping companies to weather the storm of the pandemic, the IRS is aiming to reduce the financial burden that COVID-19 has placed on small businesses while safeguarding the overall economy.
In conclusion, the employee retention tax credit is a significant relief effort designed to help businesses retain their valuable employees. By providing financial support during the pandemic, the IRS is enabling companies to keep their doors open and preserve the jobs crucial to economic recovery. Therefore, Companies wanting to benefit from this tax credit must start taking steps now to ensure they qualify for this program.