How Does Employee Retention Credit Work?

The 2020 coronavirus pandemic took a toll on the world, and it especially impacted businesses. Due to quarantine, many companies shut down and employee retention plummeted. Luckily, the  IRS has stepped in to help small businesses by providing an employee retention credit.

If you own a company that was affected by the coronavirus, you’ll likely benefit from this credit. 

So, what is an employee retention tax credit? How do you qualify for it? Well, we’ll explain that and more in the content below. Just keep reading.

What Is an Employee Retention Credit?

The employee retention credit (ERC) is essentially an incentive for employers to keep their workers on payroll. The ERC is a refundable credit of up to $5,000 for each full-time employee that’s retained from March 13th, 2020 to December 31st, 2020.

 If there are any employees retained from January 1st, 2021 to June 30th, 2021, there’s a 14,000 credit for those individuals.

The employee retention credit falls under the CARES Act, which is beneficial for both the employer and their workers. This particular credit aims to assist businesses that were monetarily impacted by the coronavirus pandemic.

How to Qualify for the Employee Retention Tax Credit

Any employer that was ordered to fully or partially shut down during the pandemic in 2020 is eligible. Also, if your gross receipts declined below 50% for the same quarter in 2019 for 2020 and under 80% for 2021, you also qualify.

To retrieve your tax credit, all you have to do is reduce your payroll taxes that you sent to the IRS. If your credits go above your payroll taxes, you can request that the IRS send you a refund.

Additionally, there’s a new law in place which is retroactive to March 27th, 2020. It allows employers to receive a Paycheck Protection Program (PPP) loan in order to claim their ERC for qualified earnings. However, this is not to be treated as payroll costs obtained for forgiving the PPP loan.

Claiming Your Employee Retention Credit

To claim the credit, eligible employers must report their total qualified earnings and also their related health insurance expenses for each quarter on their quarterly tax returns. You can file that information on form 941.

The credit is reduced from the employer’s portion of Social Security tax. However, the extra refundable amount is given under normal procedures.

Employers desiring an advance on their employee retention credit can submit their requests by filling out Form 7200.

If you’re curious to learn more about the employee retention credit, visit https://erctoday.com/.

Employee Retention Credit 2021

Receiving the employee retention credit can either make or break a small business. Without it, many companies might not have the finances needed to keep going and recover after the pandemic. Thankfully, the CARES Act exists for this type of situation so that the economy can continue moving forward.

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