The Employee Retention Credit: Everything you need to know

Has the COVID-19 pandemic have a negative impact on your business? Claiming the Employee Retention Tax Credit (ERTC) for eligible employees is still possible. But what is the ERTC?

The Employee Retention Tax Credit (ERTC) also known as ERC (Employee Retention Credit), is a program created in response to the COVID-19 pandemic and economic shutdown which incentivizes companies and small businesses with a refundable tax credit for maintaining their payroll during 2020 and 2021. This tax credit is a subsidy that businesses may take advantage of in order to keep their workers on their payroll. Because of the Consolidated Appropriations Act, which took effect on January 1, 2021, ERC legislation was extended to all firms that accepted PPP financing for 2020 and 2021.

What is the Employee Retention Credit?

Keeping employees is not only a moral responsibility, but a sound business strategy as well. The Employee Retention Credit (ERC) is one of the many tax benefits available to businesses that want to keep their employees. The ERC allows businesses to reduce their taxable income by up to $5,000 per employee for the first five years of employment. This credit is in addition to other benefits like paid sick days and maternity leave. Employers who qualify can claim the credit on their 2018 taxes filed in 2019. So, what are you waiting for? Start rewarding your employees for their loyalty and commitment to your business by taking advantage of the ERC!

CARES Act – 2020

The Employee Retention Credit is a tax break that businesses can use to attract and keep talented employees. It is available to businesses with 50 or more employees, and the credit can be worth up to $2,000 per employee. You need to file IRS Form 941 – Employer’s Annual Federal Tax Return for each year you claim the credit. There are a few things you need to know about the Employee Retention Credit before filing your taxes – like how much it is worth and when it applies…

Consolidated Appropriations Act – 2021

The Consolidated Appropriations Act – 2021 is full of provisions that will have an impact on businesses. One such provision is the Employee Retention Credit. This credit rewards companies for retaining their employees and provides tax relief worth up to $2,000 per employee over the next two years. It is important to note that this credit only applies to U.S.-based employers with at least 50 employees who were working full-time on September 30, 2020 and are still employed as of December 31, 2021.

American Rescue Plan Act – 2021

The Employee Retention Credit is a federal law that was enacted in 2021. It helps businesses retain their employees by providing tax breaks and incentives. There are different categories under which the credit can be applied- employee training, employee retention programs etcetera- and the credit can be maximized by implementing strategies such as paying bonuses, offer flexible working hours etcetera.

How Do the Credits Work?

Employee retention is a top priority for most businesses. The employee retention credit is an incentive program that helps businesses retain employees. The credits can be used to pay for benefits like health insurance, dental insurance, and 401(k) contributions. Once a business has received the credits, they are valid for a set period of time – usually three years or until the employee leaves the company. It’s important to keep track of how many credits your company has received and use them as soon as possible! In addition, it’s important to communicate the program to employees and make sure they understand their eligibility and how to use the credits. By doing so, you’ll be able to keep your valuable employees and build a stronger business foundation!

What Employers Qualify for the Employee Retention Credit?

Employers are always looking for ways to improve employee retention and access affordable credit facilities, and the employee retention credit is one of the most effective methods out there. The credit is based on the number of employees who leave during a given fiscal year, adjusted for any new hires made in that same period. Employers that maintain a qualified workforce through targeted recruitment and training programs can qualify for the credit. The credit is calculated as (Number of Employees Leaving-New Hires)/(Number of Employees-Old Hires). In order to receive the credit, employers must have placed at least 50% of their total employment into jeopardy during the previous fiscal year. To be sure you’re taking advantage of this valuable incentive, contact your accountant or business consultant today!

Things to Know Before Filing Your Employee Retention Credit in 2022

Keeping your employees is key to business success. That’s why many companies are eligible for the employee retention credit. The credit can be used to reduce taxes owed, and it can be included on your federal income tax return as a reduction in taxes owed. If you decide to let someone go, make sure they are eligible for severance pay based on their length of service with your business. This will help to compensate them for their time with your business and help to keep them motivated. Keep in mind that the employee retention credit is a tax incentive, so make sure you are eligible and take advantage of the credit before 2022 to ensure maximum returns for your business.

How to file for employee retention credit

On Form 941 for the quarter in which the qualified wages were paid, employers reported total qualified wages and the associated COVID-19 employee retention credit. The employer’s credit for the quarter ending June 30, 2020, was determined by reporting wages paid during the period March 13-31, 2020, that qualified for the employee retention credit on the second quarter Form 941 (Employer’s Quarterly Federal Tax Return). For the quarter, all earnings and remuneration paid to all workers were eligible for credit against the employer component of social security contributions (6.2% rate). It is important to note that the rules for 2021 are different. The surplus was classified as an overpayment and returned to the business if the credit amount exceeded the corporation’s share of those federal payroll taxes.

The anticipated credit amount for the quarter might be used by an acceptable employer to reduce its employment tax deposits during the quarter. All personnel would have their share of social security and Medicare taxes withheld by the employer, as well as the employer’s share of social security and Medicare taxes. The employer may file Form 7200 (Advance Payment of Employer Credits Due to COVID-19) if the employment tax deposits collected were not enough to cover the remaining credit amount. There are presently certain limits in place for 2021, when only small businesses can take advantage of the program.

Employers who fail to claim the 2020 or 2021 employee retention tax credit on a quarterly payroll tax return may file an amended return for each quarter in which the credit is available. To claim the credits, employers that file an annual payroll tax return can use Form 944-X (Adjusted Employer’s Annual Federal Tax Return or Claim for Refund) or Form 943-X (Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund).

How much is the Employee Retention Credit

70% of qualifying salaries are credited against the COVID-19 employee retention bonus in 2021. Each employee is limited to $10,000 in qualified wages per quarter (including qualified health plan costs), with a total credit of $7,000 per employee per quarter for a total of $28,000.

Can I still get the ERC while taking out a PPP loan?

Short answer is YES! ERC has far broader application than your PPP loans, however claims must exclude wages already funded by a PPP loan. You’ll need to supply information on your PPP loans to help qualify employee earnings for the ERC throughout your claim procedure.

What kind of business qualifies for ERC?

There is a wide range of businesses that qualify for the ERC. The most typical businesses that qualify are the following industries:

Hospitality, Construction, Healthcare, Industrial, Legal and more!

An eligible employer for the employee retention credit in 2020 is any private-sector employer or tax-exempt organization carrying on a trade or business during calendar year 2020, that either: 

1. fully or partially suspended operations during any calendar quarter due to orders from an appropriate government authority limiting commerce, travel, or group meetings due to COVID-19; or
2. experienced a significant decline in gross receipts during the calendar quarter.

Eligibility rules have been updated for 2021.

To be considered for the credit, more than a nominal portion of the employer’s business operations must have been suspended. For the purposes of the employee retention credit, a portion of an employer’s business is considered more than a nominal portion of operations if either the gross receipts from that portion of business operations is not less than 10% of gross receipts (determined by same calendar quarter in 2019) or the hours of service performed by employee is that portion of the business is not less than 10% of the total number of hours of service performed by all employees in the employer’s business.

Do I Have to Pay Back the Employee Retention Credit?

No. Eligible businesses claim the Employee Retention Credit, which is a fully reimbursable income tax deduction. It isn’t a loan and you don’t have to repay it. The refundable credit is greater than the payroll taxes paid during a credit-generating time for most taxpayers.

How Long Does it Take to Get an Employee Retention Credit refund?

The IRS will automatically process the credit and send a refund to employers who already filed their 2021 return. As a result, most businesses should expect to get their ERTC refund around eight to ten weeks after submitting their taxes. Form 941-X may be filed by businesses up to three years after the initial payroll taxes were due, which is normally on April 15. As a result, the 2020 ERTC and the 2021 ERTC may be claimed until April 15, 2024 and 2025, respectively.

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