Employee Retention Tax Credit Extension Explained
As a small business owner, you are likely facing unprecedented challenges in the wake of the COVID-19 pandemic. One of the biggest challenges that businesses are facing is how to retain employees during these difficult times. Fortunately, the government has stepped in to help with the Employee Retention Tax Credit Extension.
According to Schatz Senate, the Employee Retention Tax Credit allows eligible employers to claim a credit if they experience a 20% reduction in gross receipts for a quarter in 2021 compared to the same quarter in 2019, or if operations are fully or partially suspended due to COVID-19 lockdown orders. The credit can also be claimed by eligible employers with 500 or fewer employees, certain governmental employers, and start-ups with less than $1 million in annual gross receipts.
The Importance of Employee Retention for Businesses
Employee retention is crucial for small businesses. Losing key members of your team can be costly, both in terms of time and money. Hiring and training new employees can take a significant amount of resources, which is why it's essential to do everything you can to keep your current employees happy and engaged.
The Impact of the COVID-19 Pandemic on Employee Retention
The COVID-19 pandemic has made it more challenging than ever to retain employees. Businesses have had to shut down temporarily, reduce hours, or transition to remote work. These changes can be stressful for employees, who may be worried about their job security and their ability to provide for their families. The Employee Retention Tax Credit Extension was created to help businesses keep their employees on payroll during these difficult times.
What is the Employee Retention Tax Credit?
The Employee Retention Tax Credit is a refundable tax credit for businesses that continued to pay employees during the COVID-19 pandemic or had significant declines in gross receipts. According to the IRS, eligible employers can claim the credit on an original or adjusted employment tax return for a period within specific dates. Recovery startup businesses are eligible for the credit in the fourth quarter of 2021. Employers should be cautious of third parties advising them to claim the credit when they may not qualify, and penalty relief is available for claims related to the credit. The ERC Frequently Asked Questions provide historical information and do not reflect the current status of the credit.
Eligibility Requirements for the Employee Retention Tax Credit
To be eligible for the Employee Retention Tax Credit, businesses must meet certain requirements. According to Paychex, the credit can be claimed by businesses that were fully or partially suspended or had to reduce business hours due to a government order or had significant declines in gross receipts. Employers cannot double-dip for credits and must work with their accountant and payroll specialist for more information.
Calculation of the Credit Amount
The amount of the Employee Retention Tax Credit is calculated based on qualified wages paid to employees. According to Paychex, the credit can be claimed against 50% or 70% of qualified wages paid, up to $10,000 per employee annually for wages paid between March 13 and Dec. 31, 2020, and up to $10,000 per employee per quarter in 2021.
Overview of the Changes Made to the Employee Retention Tax Credit through the American Rescue Plan
The American Rescue Plan extends the availability of the Employee Retention Credit and Paid Leave Credits for small businesses through December 2021. According to the Treasury Department, businesses can offset payroll tax liabilities by up to $7,000 per employee per quarter and claim tax credits equal to wages of up to $5,000 for offering paid leave to employees who are sick or quarantining. These credits can be claimed against payroll taxes on a quarterly basis.
How to Claim the Employee Retention Tax Credit
Claiming the Employee Retention Tax Credit can be a complex process. Here's what you need to know to claim the credit for your business.
Explanation of the Process for Claiming the Employee Retention Tax Credit
According to Paychex until 2024 or 2025 by conducting a lookback on their payroll during the pandemic and filing an amended tax return. The credit can be claimed on qualified wages paid after March 12, 2020 through the end of the program, but cannot be taken on wages forgiven under PPP.
Explanation of the Lookback Period for Retroactive Claims
The lookback period for retroactive claims is from March 13, 2020, through December 31, 2020. According to Schatz Senate, employers can claim the credit for each quarter until the end of 2021.
Discussion of the Role of Accountants and Payroll Specialists in Claiming the Credit
Working with an accountant or payroll specialist can be helpful in claiming the Employee Retention Tax Credit. According to Paychex, employers should work with their accountant and payroll specialist to identify and calculate qualified wages and determine eligibility for the credit.
Overview of the Penalties for Ineligible Claims
Penalties may apply for ineligible claims. According to the IRS, employers should be cautious of third parties advising them to claim the credit when they may not qualify, and penalty relief is available for claims related to the credit. The ERC Frequently Asked Questions provide historical information and do not reflect the current status of the credit.
Benefits of the Employee Retention Tax Credit
The Employee Retention Tax Credit can be highly beneficial for small businesses. Here are some of the benefits of claiming the credit.
Benefits of Retaining Employees
Retaining employees is crucial for small businesses. According to SnackNation, losing key members of your team can be costly, both in terms of time and money. Hiring and training new employees can take a significant amount of resources, which is why it's essential to do everything you can to keep your current employees happy and engaged. The Employee Retention Tax Credit can help businesses do just that by providing financial support to retain employees.
Overview of the Financial Benefits of the Employee Retention Tax Credit
The financial benefits of the Employee Retention Tax Credit can be substantial. According to SnackNation, eligible employers and small to medium-sized businesses can receive up to 50% of qualifying wages paid from March 13th to October 1, 2021. The ERC is a refundable tax credit available for businesses impacted by the pandemic, and can be claimed for each qualifying quarter from January 1, 2021, through June 30, 2021.
Discussion of the Limitations of the Employee Retention Tax Credit
While the Employee Retention Tax Credit can be highly beneficial for small businesses, it's important to be aware of its limitations. According to Paychex, the credit cannot be taken on wages forgiven under PPP. Additionally, employers cannot double-dip for credits, which means that if they claim the Employee Retention Tax Credit, they cannot also claim credits for Paid Sick Leave or Paid Family Leave.
Examples of Small Businesses That Have Benefitted from the Employee Retention Tax Credit
Many small businesses have already benefitted from the Employee Retention Tax Credit. For example, according to Schatz Senate, a small business owner in Hawaii was able to retain her employees and avoid layoffs thanks to the credit. The credit allowed her to keep her business running and provide for her employees during these challenging times.
Conclusion
The Employee Retention Tax Credit can be an excellent resource for small businesses impacted by the COVID-19 pandemic. By providing financial support to retain employees, the credit can help businesses stay afloat during these challenging times. However, it's important to be aware of the eligibility requirements, calculation of the credit amount, and limitations of the credit. Employers should work with their accountant and payroll specialist to determine eligibility and calculate qualified wages. By taking advantage of the Employee Retention Tax Credit, small businesses can continue to provide for their employees and thrive in the post-pandemic world.
Keep Up With the Latest Tax Credit News
Stay up-to-date with the latest tax credit news by checking out our other great content on ertcguy.com. Our team of experts is dedicated to providing you with the most up-to-date and accurate information about tax credits, small business finance, and more. By staying informed, you can make the most of the financial resources available to your business and keep your employees happy and engaged. Check out our other articles, guides, and resources today!
Answers To Common Questions
Who is eligible for the Employee Retention Tax Credit extension?
Small businesses with 500 or fewer employees, certain governmental employers and startups with less than $1 million in annual gross receipts are eligible for the Employee Retention Tax Credit extension.
What is the Employee Retention Tax Credit extension?
The Employee Retention Tax Credit extension is a refundable tax credit for small businesses that continued to pay employees during the COVID-19 pandemic or had significant declines in gross receipts.
How can I claim the Employee Retention Tax Credit extension?
You can claim the Employee Retention Tax Credit extension on an original or adjusted employment tax return for a period within specific dates.
Who can I contact for more information on the Employee Retention Tax Credit extension?
You can work with your accountant and payroll specialist for more information on the Employee Retention Tax Credit extension.
What are the limitations of the Employee Retention Tax Credit extension?
The credit cannot be taken on wages forgiven under PPP. Additionally, employers cannot double-dip for credits.
How long can I retroactively claim the Employee Retention Tax Credit extension?
You can retroactively claim the Employee Retention Tax Credit extension until 2024 or 2025 by conducting a lookback on your payroll during the pandemic and filing an amended tax return.
