employee retention is essential for any business. Not only does it help create stability and continuity in work processes, but it also saves costs from repeatedly hiring and training new employees. To encourage companies to keep their employees, the government has introduced the employee retention tax credit, which business owners should consider taking advantage of.
The employee retention tax credit (ERTC) is a refundable tax credit designed to help businesses retain their employees in times of economic distress, such as during the COVID-19 pandemic. The credit is designed to help small and medium-sized businesses, and it offers a significant financial benefit. In total, businesses can receive a maximum credit of $33,000 for each employee they retain.
For small businesses, the ERTC can mean the difference between keeping their doors open or shutting down entirely. It’s a powerful tool that can go a long way towards helping businesses retain their employees and stay in business. It’s essential to understand how the credit works and the eligibility criteria.
Eligibility for the ERTC
To be eligible for the ERTC, businesses must meet specific criteria. The credit is available for businesses that fall into one of two categories:
1. Businesses that have had a significant decline in gross receipts – Generally, businesses that have had a decline of at least 50% in gross receipts, compared to the same quarter in 2019, are eligible for the ERTC.
2. Businesses that were partially or fully suspended due to a government order – Businesses that were forced to shut down due to government-issued orders can also qualify for the ERTC.
How the ERTC Works
The ERTC provides a refundable tax credit against the employer’s share of social security tax. This tax credit is equal to 70% of the qualified wages paid to each employee. The credit is available for the first $10,000 in qualified wages paid to each employee during the period specified for the credit.
The qualified wages depend on the business’s size, with large employers being subject to some additional requirements. The wages can include health benefits and retirement plan contributions, as well as any other eligible wages.
The ERTC is available for any wages paid from March 13, 2020, to December 31, 2021. It’s important to note that businesses can only claim the ERTC or the Paycheck Protection Program, not both. However, businesses that received a PPP loan may still be eligible for the ERTC.
The ERTC is an excellent tool for businesses looking to retain their employees during challenging economic times. By taking advantage of this refundable tax credit, small and medium-sized businesses can save significantly on their tax bill while keeping their employees on board. If you’re a business owner struggling to retain your employees during the COVID-19 pandemic, consider exploring the ERTC to see if you qualify.