employee retention is a crucial aspect of any successful business. Retaining your talented and skilled employees not only saves you time and money on recruiting and training new employees but also creates a positive work culture and boosts employee morale. To encourage businesses to retain their employees, the Internal Revenue Service (IRS) offers an employee retention credit (ERC) that can be availed through QuickBooks. This comprehensive guide will walk you through the process of unlocking the benefits of the employee retention credit in QuickBooks.
First and foremost, let’s understand what the employee retention credit is. The ERC is a refundable tax credit provided by the IRS to eligible employers who have managed to keep their employees employed during times of economic distress, such as the COVID-19 pandemic. The credit is available for wages paid between March 13, 2020, and December 31, 2021, and is calculated based on a percentage of qualified wages paid to retained employees.
Now, let’s delve into the steps required to unlock the benefits of the ERC in QuickBooks.
Step 1: Determine Eligibility
Before diving into the process, ensure that you qualify for the employee retention credit. To be eligible for the ERC, your business must have experienced either a full or partial suspension of operations due to a government order or a significant decline in gross receipts. Additionally, the ERC is available for businesses with 100 or fewer employees in 2019 or for businesses that had an average of 500 or fewer full-time employees in 2019.
Step 2: Update QuickBooks
Ensure that you have the latest version of QuickBooks installed on your system. Check for any updates and install them to avail the latest features and functionalities, including those required for ERC calculations.
Step 3: Set up the ERC in QuickBooks
To start utilizing the employee retention credit in QuickBooks, you need to set it up correctly. Firstly, go to the Payroll Center in QuickBooks and choose ‘Taxes & Liabilities.’ Under the ‘Payroll Item List,’ click on ‘New…’. Then, select ‘Custom Setup’ and ‘Next.’ Proceed by clicking on ‘Compensation’ and ‘Next.’ Now, select ‘Sick Pay’ and enter the necessary details for the ERC calculations. Review the information and click ‘Finish.’
Step 4: Track Qualified Wages
It is essential to accurately track qualified wages eligible for the ERC. QuickBooks allows you to assign specific wages or salary items to the ERC pay type you set up in the previous step. By categorizing wages under the ERC pay type, QuickBooks automatically calculates the ERC amount applicable to each employee‘s pay.
Step 5: Recording the ERC credit
Once you have set up the ERC and assigned qualified wages, QuickBooks will calculate the credit amount based on the wages you have recorded. To record the ERC credit, go to ‘Employees’ and select ‘Payroll Taxes and Liabilities.’ Then, choose ‘Create Custom Liability Payments’ and select the appropriate pay schedule. Under ‘Payment For,’ select ‘employee retention credit.’ Review and adjust the credit amount as required, and then click ‘OK.’
Step 6: Filing the Necessary Forms
To claim the ERC credit, you need to file the appropriate forms with the IRS. In QuickBooks, you can generate these forms automatically. Go to ‘Employees’ and select ‘Payroll Center.’ Under ‘Taxes & Forms,’ choose ‘Create Filings’ and select the desired form, such as Form 941. Review the information and make any necessary adjustments. Once you are satisfied, click ‘Submit Electronically’ to file the form directly from QuickBooks.
Unlocking the benefits of the employee retention credit in QuickBooks can help your business save on taxes and improve your cash flow. By following this comprehensive guide, you can ensure that you are effectively utilizing the ERC and complying with IRS regulations. Remember to consult with a tax professional or accountant for personalized advice and guidance specific to your business’s unique situation.