As a business owner, one of your top priorities is likely retaining your talented employees. Not only do high employee turnover rates lead to significant recruitment and training costs, but they can also negatively impact your company’s productivity, morale, and reputation.
Fortunately, the employee retention tax credit (ERTC) can help you secure your company’s future by incentivizing you to keep your employees on staff. This credit was first introduced in 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and was extended into 2021 under the Consolidated Appropriations Act. Let’s take a closer look at how the ERTC can benefit your business.
What is the employee retention tax credit?
The employee retention tax credit is a tax credit that provides eligible employers with a refundable payroll tax credit designed to encourage companies to continue to pay employees during the COVID-19 pandemic. The credit applies to wages paid between March 12, 2020, and December 31, 2021, and can be claimed against Social Security and Medicare taxes.
To qualify for the ERTC, your company must have experienced either:
1. Partial or full suspension of operations due to government orders related to COVID-19 OR
2. A significant decline in gross receipts during the calendar quarter (when compared to the same quarter in the previous year)
How much is the employee retention tax credit worth?
The amount of the ERTC depends on the size of your business, the salaries of your employees, and the number of hours they worked. For 2021, the ERTC can be worth up to $7,000 per employee per quarter, for a total of up to $28,000 per employee for the year.
How can the employee retention tax credit benefit my business?
The employee retention tax credit can benefit your business in many ways, including:
1. Encouraging employee retention: The ERTC provides a financial incentive for your business to retain your employees, which can save you the cost of finding, hiring, and training new employees.
2. Reducing the cost of payroll taxes: The ERTC can be claimed against Social Security and Medicare taxes, reducing your company’s payroll tax burden.
3. Boosting cash flow: The ERTC is a refundable tax credit, meaning it can provide your business with a cash refund even if you don’t owe any payroll taxes.
4. Supporting business growth: By retaining your talented employees, you can maintain productivity and continue to meet customer demands, which can ultimately lead to business growth.
How can I claim the employee retention tax credit?
To claim the ERTC, you will need to fill out Form 941, the employer’s quarterly federal tax return. You can claim the ERTC on your Form 941 for any quarter in which you meet the eligibility requirements. If you don’t owe any payroll taxes, you can request a refund from the IRS.
Final thoughts
The employee retention tax credit is a valuable tool for businesses looking to retain their talented employees during uncertain times. By incentivizing employee retention and reducing payroll tax costs, the ERTC can help you secure your company’s future and support business growth. If you think your company may qualify for the ERTC, be sure to consult with a qualified tax professional to maximize your benefits.