As a business owner or a firm’s HR department, it is always a challenge to maintain employee retention rates. Apart from providing an excellent working environment and opportunities for employee growth, one can also take advantage of various tax credits and incentives to encourage employee retention. One such tax credit is the employee retention tax credit (ERTC).
Employers can claim up to $5,000 as a tax credit for retaining employees who meet the eligibility criteria. It was introduced as part of the CARES Act in 2020 as a stimulus measure to assist businesses adversely affected by the COVID-19 pandemic. However, the credit has been extended until the end of 2021 under the American Rescue Plan (ARP) Act. If you haven’t already taken advantage of the ERTC, now is the time to do so.
Here is a helpful guide on unlocking the employee retention tax credit:
Eligibility Criteria:
To claim the ERTC, your business needs to meet specific eligibility criteria. These include:
– Your company is a small or mid-sized business.
– The business operations were either partially or fully suspended due to government orders related to COVID-19.
– Your company had a decline in gross receipts by at least 20% in any quarter in 2020 compared to the same quarter in 2019, or a 20% decline in gross receipts for the first two quarters of 2021.
Amount of credit:
The ERTC provides up to $5,000 per employee. The credit is refundable, meaning businesses can receive the credit as a refund, even if they have no tax liability. It does not affect other tax credits or deductions.
Eligible Employees:
To claim the credit, the employee must meet eligibility criteria. These include:
– Full-time or part-time employee.
– Employed by the business within the specific time frames.
– Wasn’t retained for the sole purpose of claiming the credit.
– Wages and salaries paid to the employee during the eligible period.
Claiming the credit:
Businesses can claim the ERTC on Form 941, Employer’s Quarterly Federal tax Return, or Form 7200, Advance Payment of Employer Credits Due to COVID-19. You can also recalculate and submit an amended Form 941.
The businesses need to keep track of eligible employees, their wages and salaries, and the period they were employed during the eligible period. It is advisable to take help from professional tax consultants to ensure compliance with the guidelines.
In conclusion, unlocking the employee retention tax credit can benefit your business and the employees. By providing economic incentives for employee retention and paying close attention to eligibility criteria, companies can better retain qualified employees and reduce operational costs. Ensure your compliance with regulations and take advantage of the available support mechanisms for successful utilization of the credit.