As businesses continue to navigate the challenges caused by the COVID-19 pandemic, employee retention has become a top priority for many. To incentivize employers to keep their workers on payroll, the U.S. government has introduced an employee retention tax credit (ERTC). This credit is designed to offset some of the costs associated with keeping employees on payroll during the pandemic.
However, navigating the ERTC can be complex, with many guidelines and restrictions to follow. To help business owners and managers better understand the ERTC, the IRS has recently shared some tips and tricks for navigating this tax credit. Here are some key takeaways:
1. Who can claim the ERTC?
Eligibility for the ERTC depends on several factors, including the size of your business, the nature of your operations, and the impact of the pandemic on your business. Generally speaking, businesses with fewer than 500 employees are eligible for the credit. However, there are some exceptions for larger businesses in certain industries, such as restaurants and hotels.
2. How much is the ERTC worth?
The ERTC is worth up to 70% of eligible wages paid between March 12, 2020, and December 31, 2021. The maximum credit per employee is $28,000 for the entire period. To receive the maximum credit, businesses must have experienced a significant decline in revenue compared to pre-pandemic levels.
3. What are eligible wages?
Eligible wages are wages paid to employees during the period covered by the credit. The exact definition of eligible wages varies depending on the size of the business and the nature of the work performed by the employees. For example, wages paid to certain family members of business owners are not eligible for the credit.
4. How do you claim the ERTC?
To claim the ERTC, businesses must file IRS Form 941, the employer’s quarterly federal tax return, for each quarter they wish to claim the credit. The credit is refundable, meaning that businesses can receive a payment from the government even if they do not owe any taxes.
5. Other tips and tricks
The IRS has also shared several other tips and tricks for navigating the ERTC. For example, businesses should keep detailed records of all eligible wages paid and the decline in revenue that qualifies them for the credit. They should also be aware of the various restrictions and limitations on the credit, such as the fact that it cannot be claimed for employees who were not working due to COVID-related closures or quarantines.
In summary, the ERTC can be a valuable tool for businesses looking to retain employees during the pandemic. However, it is important to follow the guidelines and restrictions set forth by the IRS to ensure that you are eligible for the credit and receive the maximum benefit available. By keeping detailed records and seeking advice from tax professionals, businesses can navigate the ERTC successfully and emerge from the pandemic in a stronger position.