For business owners and managers, employee retention is a constant concern. Retaining talented and experienced employees is essential for a company’s success. If employees leave, companies face the expense of hiring and training replacements, and they lose out on the knowledge and skills employees had gained while working for them. However, employee retention has become even more critical in recent years, as the job market has become increasingly competitive, leading to employees receiving multiple job offers.
To help companies keep and attract top talent, the employee retention tax credit (ERTC) was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020. The ERTC was designed to help businesses adversely affected by the COVID-19 pandemic, and it has since been extended for 2021 and 2022. The ERTC works by giving eligible employers a tax credit for wages paid to employees who are retained despite a significant decline in business due to COVID-19.
The ERTC is a refundable tax credit. This means that even if an eligible employer has no federal payroll tax liability or a lower liability than the amount of the tax credit, they may still receive a refund for the excess credit amount. As for the amount of the tax credit, eligible employers who kept employees on their payroll during a qualifying period can receive a tax credit of up to $7,000 per employee per quarter in 2021 and 2022. The ERTC can have a significant positive impact on a company’s bottom line, and it can help offset the cost of retaining employees that are essential to a company’s success.
To qualify for the ERTC, companies must meet certain requirements. For 2022, companies are eligible for the ERTC if they experienced a decline in gross receipts of at least 20% in a quarter compared to the same quarter in 2019. Alternatively, companies can meet the eligibility requirements if they were fully or partially shut down due to government orders related to COVID-19 or experienced a significant decline in gross receipts, compared to 2019, due to COVID-19.
If companies meet these requirements, they can claim the ERTC for wages paid to employees during the qualifying period. These wages include employee compensation and health care costs. Importantly, the ERTC does not apply to wages paid to owners, their spouses, or other family members.
In conclusion, the ERTC is a valuable tool that eligible employers can use to offset the cost of retaining employees during challenging times. Given the ongoing disruption caused by COVID-19, the ERTC may be more important than ever for companies looking to retain top talent, stay competitive, and thrive. So if you’re an eligible employer, make sure to take advantage of this tax credit and unlock the benefits of employee retention.