As a business owner, saving on taxes is always a priority. One way to achieve this goal is to take advantage of the employee retention credit (ERC). The ERC is a tax credit available to eligible employers who have experienced a significant decline in revenue due to the COVID-19 pandemic. This credit is designed to help employers keep their employees on payroll, even if they are not able to work due to the pandemic.
So, how can you claim the ERC for your business? Here are the steps you need to follow:
1. Determine if you are eligible
To claim the ERC, you must meet certain eligibility criteria. These include:
– Your business operations were fully or partially suspended due to a government order related to COVID-19
– Your business experienced a significant decline in gross receipts, which is defined as a decrease of 50% or more in gross receipts compared to the same quarter in the previous year
– You have fewer than 500 employees
If you meet these criteria, you may be eligible for the ERC.
2. Calculate the amount of the credit
The ERC is a refundable tax credit that is equal to 50% of qualified wages paid to employees during the pandemic. The maximum credit is $5,000 per employee for 2020 and $7,000 per employee per quarter in 2021.
To calculate your credit, you need to determine the qualified wages paid to each employee during the eligibility period. These wages include the employee’s regular pay, plus health care benefits and certain other qualified expenses.
3. Claim the credit on your tax return
To claim the ERC, you must file Form 941, the quarterly employment tax return. The credit is reported on Line 11c of the form.
If the credit exceeds your payroll tax liability for the quarter, you can request a refund of the excess amount on Form 7200, the Advance Payment of Employer Credits Due to COVID-19.
4. Keep records
To support your claim for the ERC, you need to keep accurate records of the wages paid to each employee during the eligibility period. These records should include the employee’s name, Social Security number, and the amount of qualified wages paid.
In addition, you should keep any documentation of the government orders that led to your business suspension, as well as information on your gross receipts during the eligibility period.
By following these steps, you can claim the ERC for your business and save on taxes during the pandemic. If you have any questions about the credit, consult with a tax professional to ensure that you are claiming it correctly.