Unlocking employee retention credit: How to Check Your Eligibility Status
The COVID-19 pandemic has presented numerous challenges for businesses around the world, with employee retention being one of the biggest concerns. To provide support to struggling companies and encourage them to retain their workers, the U.S. government introduced the employee retention credit (ERC) as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This credit has proven to be a vital lifeline for many organizations, helping them retain their employees during these difficult times.
The ERC is a refundable tax credit available to eligible employers who have experienced a significant decline in gross receipts or have been subject to full or partial suspension of their operations due to government orders related to COVID-19. It is worth up to $5,000 per eligible employee for qualified wages paid between March 13, 2020, and December 31, 2021.
Determining eligibility for the ERC can be a complex process, but there are steps you can take to check your eligibility status.
1. Review eligibility criteria: The ERC is available to employers of all sizes, including tax-exempt organizations. To qualify, you must meet certain criteria, such as having experienced a significant decline in gross receipts, or having been fully or partially suspended due to government orders. Familiarize yourself with the eligibility requirements outlined by the IRS to determine if your business qualifies.
2. Analyze your gross receipts: A significant decline in gross receipts is a key factor in determining eligibility. You must demonstrate a decline of 50% or more in gross receipts compared to the same quarter in the prior year. The decline is measured on a quarterly basis, allowing you to assess your eligibility for each quarter of the year. Review your financial records to calculate the decline and determine if you meet the threshold.
3. Assess government-mandated suspension: If your business operations were partially or fully suspended due to government orders, you may be eligible for the ERC. This includes orders that restricted customer access to your premises or required you to significantly alter your operations. Review the specific government orders that affected your business and gather supporting documentation.
4. Consult with a tax professional: Given the complexity of the ERC eligibility criteria and the potential dollar value of the credit, it is advisable to seek the guidance of a tax professional. They can assist you in navigating the requirements, calculating the credit amount, and providing valuable advice on maximizing your eligibility.
5. Apply for the ERC: Once you have determined your eligibility and calculated the credit amount, you can apply for the ERC. The credit is claimed on your quarterly employment tax returns, such as Form 941. Ensure that you complete the necessary paperwork accurately and submit it within the specified deadlines to receive the credit.
The ERC has been a lifeline for many businesses struggling to retain their employees during the COVID-19 pandemic. By taking the necessary steps to check your eligibility status, you can unlock this valuable credit and provide much-needed support to your organization.
Remember, eligibility criteria, guidelines, and rules around the ERC are subject to change as the pandemic evolves and new legislation is introduced. Stay updated on the latest information provided by the IRS and consult with a tax professional to ensure you are aware of any changes that may impact your eligibility.
In these challenging times, the employee retention credit can make a significant difference to your business’s financial health and employee retention efforts. Don’t miss out on this opportunity to access the support you need to navigate the ongoing impacts of the pandemic.