The ongoing COVID-19 pandemic has inflicted tremendous harm on businesses of all sizes, forcing many to lay off or furlough their employees. To help ease the financial strain caused by the pandemic, the U.S. government has implemented various measures to support businesses, including the employee retention tax credit (ERTC).
The ERTC is a tax credit that allows eligible businesses to claim a refundable tax credit of up to $5,000 per employee. The credit is intended to incentivize employers to retain their employees by providing them with an economic incentive to keep their workforce intact, even if their business is struggling.
Eligible Businesses
To qualify for the ERTC, a business must meet certain eligibility requirements. Specifically, the credit is available to businesses that:
– Were fully or partially suspended due to a COVID-19-related government order
– Experienced a significant decline in gross receipts compared to the previous year
– Have fewer than 500 full-time employees
If your business meets these criteria, you may be eligible for the ERTC.
How Much Can You Claim?
The ERTC provides eligible businesses with a maximum credit of $5,000 per employee. This means that if you retain an employee and pay them qualifying wages of $10,000, you can take a tax credit of up to $5,000 for that employee.
The credit is calculated as 50% of qualifying wages up to a maximum of $10,000 per employee for the entire year. This means that the maximum credit you can claim per employee is $5,000.
Qualifying Wages
To claim the ERTC, eligible businesses must pay their employees qualifying wages. Qualifying wages include the following:
– Wages paid between March 13, 2020, and December 31, 2021
– Wages paid to an employee who is not providing services because the business was fully or partially suspended due to a COVID-19-related government order
– Wages paid to an employee during a calendar quarter in which the business experienced a decline in gross receipts of more than 50% compared to the same quarter in the previous year
Final Thoughts
The employee retention tax credit can be a valuable tool for businesses looking to retain their employees during the ongoing COVID-19 pandemic. By providing an economic incentive for businesses to keep their employees on the payroll, it helps to support the country’s workforce during this challenging time.
If you think your business may be eligible for the ERTC, speak to a qualified tax professional who can help guide you through the application process and ensure that you receive the maximum benefit available to you.