The employee retention tax credit (ERTC) is a valuable tax credit for small business owners who want to retain their employees during tough economic times. However, the ERTC can be complicated and confusing, which is why many small business owners avoid it altogether.
To make things easier, we’ve put together some tips and tricks for simplifying the ERTC so you can take advantage of it and keep your employees on board.
1. Understand the basics
To qualify for the ERTC, your business must have experienced a significant decline in gross receipts or been subject to a full or partial suspension of operations due to a government order. You must also have retained all employees on your payroll during the qualifying period.
The credit is equal to 70% of qualifying wages paid to each employee, up to $10,000 per employee for all quarters in 2021.
2. Keep accurate records
To claim the credit, you need to keep accurate records of employee wages, the period of suspension or decline in gross receipts, and any other relevant information. This will make it easier for your accountant or tax preparer to calculate the credit and ensure that you are claiming the correct amount.
3. Consult with a tax professional
The ERTC can be complex, and the rules and regulations surrounding it are constantly changing. To ensure that you are taking full advantage of the credit and are claiming the correct amount, it’s a good idea to consult with a tax professional.
4. Use payroll software
Payroll software can help simplify the process of tracking employee wages and calculating the credit. Many payroll software programs have built-in ERTC calculators that can automatically calculate the credit for you.
5. Consider retroactive payroll adjustments
If you didn’t claim the ERTC for previous quarters in 2020, you may be able to claim the credit on your 2020 tax return. You can do this by making retroactive payroll adjustments to increase the qualifying wages for each employee.
6. Don’t forget about state tax credits
Many states also offer employee retention tax Credits, so be sure to check if your state has a credit available. You may be eligible for both the federal and state credits.
In conclusion, the employee retention tax credit is a powerful tool for small business owners who want to retain their employees during tough economic times. By understanding the basics, keeping accurate records, consulting with a tax professional, using payroll software, making retroactive payroll adjustments, and exploring state tax credits, you can simplify the ERTC and take full advantage of it.