Mastering QuickBooks: Step-by-Step Guide to Recording employee retention credit
As a business owner, it is crucial to stay updated on any tax credits or incentives that can benefit your company’s financial bottom line. One such credit is the employee retention credit (ERC), which was introduced by the CARES Act to help companies retain employees during the COVID-19 pandemic. If you are eligible for this credit, properly recording it in your accounting software, such as QuickBooks, is essential. In this article, we will provide you with a step-by-step guide on how to record the employee retention credit in QuickBooks.
Step 1: Determine your eligibility
Before recording any credit, it is essential to ensure that you meet all the eligibility criteria for the employee retention credit. The ERC is available to businesses that either experienced a significant decline in gross receipts or were subject to a full or partial government-mandated shutdown during the pandemic. Additionally, the credit amount varies based on the number of employees you had in 2019.
Step 2: Set up tracking account
To accurately record the employee retention credit in QuickBooks, you need to create a tracking account. This account will help you monitor the transactions and easily identify the credit when needed. To create a tracking account, go to “Lists” on the top menu bar, then click on “Chart of Accounts.” Select “New” to create a new account and choose the “Other Current Liability” account type. Name the account “employee retention credit” or any other name that makes it identifiable to you.
Step 3: Record the ERC amount
Now that you have set up the tracking account, it’s time to record the employee retention credit amount. To do this, go to the “Banking” tab on the top menu bar and select “Make Deposits.” Choose the appropriate bank account where you will receive the credit amount. Under the “Received From” column, select the customer or the agency providing the credit (e.g., IRS). In the “From Account” column, choose the tracking account you created in Step 2. Enter the credit amount and any additional details in the respective fields. Finally, click on “Save & Close” to record the transaction.
Step 4: Apply the credit to payroll taxes
The employee retention credit can be used to offset your federal payroll tax liabilities. To apply the credit to your payroll tax liabilities, go to the “Employees” tab on the top menu bar, then select “Payroll tax Liabilities.” Click on the “Create Payment” button and choose the appropriate tax liability period. Once you have selected the period, you will see a list of liabilities to be paid. Identify the liability that aligns with the employee retention credit and enter the credit amount in the “Payment” column. QuickBooks will automatically reduce your liability by the credit amount. Finally, click on “Save & Close” to record the payment.
Step 5: Reporting and documentation
Recording the employee retention credit is not enough; you must also maintain proper documentation to support your claim. QuickBooks offers a variety of reports that can be generated to accurately reflect the credit claimed for a specific period. Reports like Profit & Loss, Payroll Details, and employee retention credit Summary can provide you with a comprehensive overview of the credit claimed and its impact on your financials.
In conclusion, properly recording the employee retention credit in QuickBooks is vital for accurate accounting and reporting. By following this step-by-step guide, you can ensure that your business takes full advantage of this tax credit while adhering to best accounting practices. If you need further assistance or have eligibility questions, consult with a tax professional or accountant to guide you through the process.