Does Your Business Qualify for the Employee Retention Credit?
The Employee Retention Credit is one of the many IRS tax breaks for businesses that was included in the 2020 CARES Act as well as the recent Consolidated Appropriations Act, 2021. The goal of the credit is to provide financial relief to businesses that suffered from the effects of coronavirus but retained their employees.
The credit is available to eligible employers that paid qualified wages from March 13, 2020 through June 30, 2021. To be eligible, requirements include having the business shut down due to national, state, or local orders or having experienced a significant reduction in gross receipts – 50+ percent in 2020 and 20+ percent in 2021 – in a quarter.
Wages and health costs can be counted for the credit, and there is a cap of $10,000 per employee per year. For 2020, the credit is 50 percent of qualifying wages, and for 2021, the credit is 70 percent of qualifying wages. Any wages used in a Paycheck Protection Program loan forgiveness process are not eligible; in other words: no double-dipping.
This tax credit is a little different as it interplays with payroll taxes and not income or business taxes. The credit can be taken on the IRS Form 941. Some employers can request an advance by completing Form 7200, although the February 1, 2021 has passed for most businesses. Tax professionals are awaiting further guidance on details of the expanded program.
For qualifying employers, the amount of the credit can be substantial. Since this credit affects your payroll taxes, payroll tax forms, and payroll tax filings, you will want to make sure it doesn’t fall through the cracks, especially if your payroll function and your income tax preparation are handled by two different companies.
If you feel your business might be eligible, contact us to see how to get started.
As always, should you have any questions or concerns regarding your tax situation please feel free to contact us.
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