As a business owner or manager, retaining your best employees should always be a top priority. Not only does it keep your team cohesive and more productive, but it can also save you money. One way to do this is through the employee retention tax credit, which encourages employers to keep their employees on staff during difficult times.
What is the employee retention tax credit?
The employee retention tax credit (ERTC) is a tax credit that employers can take advantage of to offset the costs of keeping employees on staff. This credit was created as part of the CARES Act in 2020 and has been extended through the end of 2021 as part of further COVID-19 relief legislation.
Essentially, if you qualify for the ERTC, you can receive a credit of up to $7,000 per employee per quarter to help cover their wages and benefits. This credit is available to businesses of all sizes, including nonprofits.
Who is eligible for the ERTC?
To be eligible for the ERTC, a business must meet certain criteria. First, they must have experienced a significant decline in revenue due to the COVID-19 pandemic. Specifically, a business must have experienced either:
– A decline in gross receipts of more than 50% in a calendar quarter compared to the same quarter in 2019
– A full or partial suspension of operations due to a government order related to COVID-19
Once a business meets these criteria, they can claim the ERTC for any employees they retained during the covered period. This can include both full-time and part-time employees, as well as those who were furloughed or had their hours reduced.
How can the ERTC help retain employees?
The ERTC can help businesses retain employees by providing a financial incentive to keep them on staff. For example, if a business is struggling financially due to the pandemic but wants to retain their core team, the ERTC can help offset some of the costs of doing so. This may make it more feasible for the business to retain its valuable employees, rather than laying them off or cutting hours.
In addition to the financial benefit of the ERTC, it can also help boost employee morale. Knowing that their employer is making an effort to keep them on staff during a difficult time can help employees feel more valued and invested in the company. This can lead to increased loyalty and productivity in the long run.
How can businesses claim the ERTC?
To claim the ERTC, businesses must fill out IRS Form 941 for each calendar quarter that they wish to claim the credit. This form is used to report the employer’s quarterly tax liability and is normally due by the end of the month following the end of the quarter.
Once the form is completed, the employer can reduce their payroll tax liability by the amount of the ERTC they are eligible for. If the employer is eligible for more credit than its payroll tax liability, it can receive a refund of the excess credit.
Conclusion
The employee retention tax credit is a valuable tool for businesses looking to retain their valuable employees during difficult times. By providing financial incentives to keep employees on staff, the ERTC can help businesses weather the pandemic and maintain a strong team. If you think your business may be eligible for the ERTC, speak with your accountant or tax professional to determine your eligibility and to ensure that you are claiming the credit correctly.