If you’re a small business owner or self-employed individual, you may be eligible for the employee retention credit (ERC), which can help you maximize your savings and minimize your tax liability. The ERC was established as part of the CARES Act in 2020 to help businesses retain and rehire employees during the COVID-19 pandemic, and it has been extended and expanded in subsequent legislation.
The ERC is a refundable tax credit that is available to eligible employers who have experienced a significant decline in gross receipts or have been subject to a full or partial suspension of operations due to a government order related to COVID-19. The credit is equal to 50% of qualified wages paid to employees, up to a maximum of $10,000 per employee for the 2020 tax year, and up to $28,000 per employee for the 2021 tax year.
For small business owners and self-employed individuals, understanding the ERC and taking advantage of it can result in significant tax savings. Here are a few key points to keep in mind:
1. Determine your eligibility: To be eligible for the ERC, you must meet certain criteria, including experiencing a significant decline in gross receipts or being subject to a suspension of operations. It’s important to carefully review the IRS guidelines and consult with a tax professional to determine if you qualify for the credit.
2. Maximize your credit: If you are eligible for the ERC, you should take steps to maximize the credit by identifying all qualified wages paid to employees during the eligible period. This can include wages paid to both full-time and part-time employees, as well as certain qualified healthcare expenses.
3. Consult with a tax professional: The rules and regulations surrounding the ERC can be complex, and it’s important to seek the guidance of a qualified tax professional who can help you navigate the process and ensure that you are taking full advantage of the credit.
4. Consider amending previous tax returns: If you didn’t claim the ERC on your 2020 tax return but believe you were eligible, you may be able to file an amended return to claim the credit and receive a refund. Additionally, if you have already filed your 2021 tax return without claiming the credit, you can still file an amended return to claim the credit.
By understanding the employee retention credit and taking advantage of it, small business owners and self-employed individuals can maximize their savings and reduce their tax liability. It’s important to carefully review the eligibility criteria and consult with a tax professional to ensure that you are taking full advantage of this valuable tax credit.