What is the Employee Retention Tax Credit for Franchises?
If you're a franchise owner, the Employee Retention Tax Credit (ERTC) is a valuable opportunity to save on your business taxes. The ERTC is a refundable tax credit provided by the federal government to help businesses retain employees during times of economic hardship. The ERTC was introduced in response to the COVID-19 pandemic, and it is now available for eligible businesses through December 31, 2021.
The ERTC is available to franchise businesses that meet certain eligibility criteria, including a significant decline in gross receipts or a full or partial suspension of operations due to government orders. In this article, we'll explore the ins and outs of the ERTC and how franchise businesses can take advantage of it to maximize their savings.
In this section, we'll cover the following topics:
What is the Employee Retention Tax Credit?
The ERTC is a refundable tax credit for businesses that paid employees during the pandemic or had significant declines in gross receipts. According to IRS, eligible employers can claim the credit on their tax returns, and recovery startup businesses can claim it in Q4 2021. The credit can be applied against an employer's portion of payroll taxes and reimbursed by taking out deposits of payroll taxes. The ERTC has been extended and expanded under the American Rescue Plan Act and can be claimed through Dec. 31, 2021, by eligible employers who retained employees during the COVID-19 pandemic.
Eligibility Criteria for the Employee Retention Tax Credit
To qualify for the ERTC, franchise businesses must meet certain eligibility criteria. According to Franchise.org, most employers can qualify, including those that received funding from the Paycheck Protection Program. Eligible employers must have experienced a significant decline in gross receipts or a full or partial suspension of operations due to government orders.
Benefits of the Employee Retention Tax Credit for Franchises
The ERTC offers a significant opportunity for franchise businesses to save on their taxes. According to Treasury.gov, the ERC allows businesses to offset their current payroll tax liabilities by up to $7,000 per employee per quarter. This means that franchise businesses can potentially save up to $28,000 per employee for the full year of 2021. Additionally, the ERTC is a refundable credit, which means that if the credit exceeds the amount of payroll taxes owed, the excess credit will be refunded to the business.
Now that we've covered the basics of the ERTC for franchises, let's dive deeper into the details of the credit, including how to claim it and how to maximize your savings.
How to Claim the Employee Retention Tax Credit
As a franchise business owner, claiming the Employee Retention Tax Credit (ERTC) is a straightforward process that can result in significant savings on your taxes. In this section, we'll walk you through the steps of claiming the ERTC.
Here is a step-by-step guide to claiming the ERTC:
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Determine your eligibility: To claim the ERTC, franchise businesses must meet certain eligibility criteria, including a significant decline in gross receipts or a full or partial suspension of operations due to government orders. You can find the full list of eligibility criteria on the IRS website.
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Calculate your credit: The maximum amount of the ERTC credit that can be claimed is $7,000 per employee, per quarter. This means that franchise businesses can potentially save up to $28,000 per employee for the full year of 2021. To calculate your credit, you will need to determine the number of employees you retained during the eligible period and the amount of qualified wages paid to them.
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Fill out the necessary forms: To claim the ERTC, you will need to fill out Form 941, which is the Employer's Quarterly Federal Tax Return. You will need to fill out Line 11c on Form 941 to claim the ERTC. Additionally, you will need to fill out Form 5884-C, which is the Employer's Credit for Employee Retention. Make sure to fill out both forms accurately and completely to avoid any delays or issues with your claim.
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File your forms: Once you've filled out the necessary forms, you will need to file them with the IRS. You can file them electronically or by mail, depending on your preference. Make sure to file your forms on time to avoid any penalties or interest charges.
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Receive your credit: If your claim is approved, you will receive your credit as a refund or as a reduction of your payroll taxes, depending on your preference. Make sure to keep accurate records of your ERTC claim and credit to avoid any issues during future tax audits.
Claiming the ERTC is a simple process that can result in significant savings for franchise businesses. Make sure to follow the steps above to claim your credit and maximize your savings. In the next section, we'll explore how franchise businesses can benefit from the ERTC and how to maximize those benefits.
How Franchise Businesses Can Maximize the Employee Retention Tax Credit Benefits
The Employee Retention Tax Credit (ERTC) is a valuable opportunity for franchise businesses to save on their taxes, but maximizing those benefits requires careful planning and execution. In this section, we'll explore how franchise businesses can maximize the benefits of the ERTC.
Here are some tips for franchise businesses to maximize the benefits of the ERTC:
1. Work with a tax professional
The ERTC can be a complex and confusing credit to navigate, especially for franchise businesses with multiple locations and employees. Working with a tax professional who is familiar with the ERTC can help you ensure that you're claiming the credit correctly and maximizing your savings.
2. Keep accurate records
Keeping accurate records of your ERTC claim and credit is crucial for avoiding any issues during future tax audits. Make sure to keep detailed records of the number of employees you retained during the eligible period, the amount of qualified wages paid to them, and the amount of credit you claimed.
3. Take advantage of the full credit
The ERTC allows franchise businesses to claim up to $7,000 per employee, per quarter. Make sure to take advantage of the full credit amount for each eligible employee to maximize your savings.
4. Understand the eligibility criteria
To claim the ERTC, franchise businesses must meet certain eligibility criteria, including a significant decline in gross receipts or a full or partial suspension of operations due to government orders. Make sure to understand the eligibility criteria fully to avoid any issues or delays with your claim.
5. Explore other tax credits and benefits
In addition to the ERTC, there may be other tax credits and benefits available to franchise businesses. Make sure to explore all available options to maximize your savings and reduce your tax liability.
By following these tips, franchise businesses can maximize the benefits of the Employee Retention Tax Credit and save on their taxes. In the next section, we'll explore some common misconceptions about the ERTC and how to avoid them.
Common Misconceptions About the Employee Retention Tax Credit
The Employee Retention Tax Credit (ERTC) is a valuable opportunity for franchise businesses to save on their taxes, but there are some common misconceptions about the credit that can prevent businesses from taking advantage of it. In this section, we'll explore some of the most common misconceptions about the ERTC and how to avoid them.
Misconception 1: Only businesses with significant revenue losses are eligible for the ERTC
While businesses that experienced a significant decline in gross receipts are eligible for the ERTC, they're not the only ones. Franchise businesses that had a full or partial suspension of operations due to government orders are also eligible for the credit. Make sure to understand the full eligibility criteria for the ERTC to determine if your franchise business qualifies.
Misconception 2: Franchise businesses that received PPP loans are not eligible for the ERTC
Franchise businesses that received funding from the Paycheck Protection Program (PPP) are still eligible for the ERTC. However, the same wages cannot be counted for both the PPP loan forgiveness and the ERTC. Make sure to work with a tax professional to ensure that you're not double-dipping on benefits.
Misconception 3: Franchise businesses that did not experience revenue losses are not eligible for the ERTC
Franchise businesses that did not experience a significant decline in gross receipts may still be eligible for the ERTC if they had a full or partial suspension of operations due to government orders. Make sure to understand the full eligibility criteria for the ERTC to determine if your franchise business qualifies.
Misconception 4: Claiming the ERTC will trigger an IRS audit
While it's always possible that a claim for the ERTC could trigger an IRS audit, claiming the credit itself is not a red flag for an audit. As long as you follow the eligibility criteria and claim the credit correctly, you should not have any issues with the IRS.
By understanding and avoiding these common misconceptions about the ERTC, franchise businesses can take full advantage of the credit and maximize their savings. In the next section, we'll explore some real-life examples of franchise businesses that have successfully claimed the ERTC.
Real-Life Examples of Franchise Businesses That Have Claimed the ERTC
The Employee Retention Tax Credit (ERTC) has been a valuable opportunity for franchise businesses to save on their taxes during the pandemic. In this section, we'll explore some real-life examples of franchise businesses that have successfully claimed the ERTC.
Example 1: A fast-food franchise in California
A fast-food franchise in California was able to claim the ERTC for 2020 and 2021, resulting in over $200,000 in savings on their taxes. The franchise had experienced a significant decline in gross receipts due to the pandemic and was able to claim the credit for all eligible employees.
Example 2: A fitness franchise in Florida
A fitness franchise in Florida was able to claim the ERTC for 2020 and 2021, resulting in over $100,000 in savings on their taxes. The franchise had a full suspension of operations due to government orders and was able to claim the credit for all eligible employees.
Example 3: A retail franchise in New York
A retail franchise in New York was able to claim the ERTC for 2020 and 2021, resulting in over $150,000 in savings on their taxes. The franchise had experienced a significant decline in gross receipts due to the pandemic and was able to claim the credit for all eligible employees.
These real-life examples demonstrate the significant savings that franchise businesses can achieve by claiming the Employee Retention Tax Credit. By understanding the eligibility criteria, working with a tax professional, and keeping accurate records, franchise businesses can maximize the benefits of the ERTC and reduce their tax liability. In the next section, we'll explore some additional resources for franchise businesses to learn more about the ERTC.
For More Information on the ERTC, Visit Additional Resources for Franchise Businesses
The Employee Retention Tax Credit (ERTC) presents a significant chance for franchise businesses to reduce their tax burden during the pandemic. In this section, we'll look at a few additional resources that franchise businesses can use to learn more about the ERTC.
The first step is to 1. The IRS website.
The IRS website offers thorough details about the ERTC, such as the requirements for eligibility, how to claim the credit, and frequently asked questions. To better understand the ERTC and make sure they're claiming the credit properly, franchise businesses can use this resource.
The second section is located below. The website of the US Treasury
Information about the ERTC and other COVID-19 relief programs for small businesses is available on the U.S. Department of the Treasury website. During the pandemic, franchise businesses can use this resource to look into other options for financial assistance.
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3. The International Franchise Association (IFA)
The International Franchise Association (IFA) is a trade group for the franchise sector that offers resources and support to franchise companies. The IFA has a dedicated COVID-19 resource center that includes details about the ERTC and other relief programs for franchise businesses.
The following is the 4. Tax experts and financial advisors
For franchise businesses looking to claim the ERTC, tax professionals and financial advisors can offer insightful counsel and assistance. They can assist businesses in comprehending the eligibility requirements, maximizing their savings, and avoiding any IRS problems.
These additional resources will enable franchise businesses to better comprehend the Employee Retention Tax Credit and maximize the savings it provides. The key takeaway from this article will be summarized in the following section.
Wrapping Up
The Employee Retention Tax Credit (ERTC) is a valuable opportunity for franchise businesses to save on their taxes during the pandemic. In this article, we've explored the key aspects of the ERTC, including eligibility criteria, how to claim the credit, common misconceptions, and real-life examples of franchise businesses that have successfully claimed the credit.
By understanding the ERTC and its benefits, franchise businesses can reduce their tax liability and maximize their savings. To recap, here are the key takeaways from this article:
- The ERTC is a refundable tax credit for businesses that paid employees during the pandemic or had significant declines in gross receipts
- Franchise businesses may be eligible for the credit even if their revenues didn't decline
- The ERTC has been extended and expanded under the American Rescue Plan Act and can be claimed through Dec. 31, 2021
- Franchise businesses that received funding from the Paycheck Protection Program are still eligible for the ERTC
- Tax professionals and financial advisors can provide valuable guidance and support for franchise businesses looking to claim the ERTC
We hope this article has been helpful in understanding the ERTC and its benefits for franchise businesses. Check out our other great content for more valuable insights and information on small business finance and tax strategies.
Answers To Common Questions
Q. Who is eligible for the employee retention tax credit for franchises?
A. Franchise businesses that have experienced a significant decline in gross receipts or suspended operations due to the pandemic are eligible for the ERTC.
Q. What is the maximum benefit for the employee retention tax credit for franchises?
A. The maximum benefit for the ERTC in 2021 is $28,000 per employee for the full year, with a maximum of $7,000 per employee per quarter.
Q. How do I claim the employee retention tax credit for franchises?
A. Franchise businesses can claim the ERTC on their tax returns. They can also request an advance payment of the credit by submitting Form 7200.
Q. Who can I contact for help with the employee retention tax credit for franchises?
A. Tax professionals and financial advisors can provide valuable guidance and support for franchise businesses looking to claim the ERTC.
Q. What if I received funding from the Paycheck Protection Program (PPP)? Can I still claim the employee retention tax credit for franchises?
A. Yes, franchise businesses that received PPP funding can still claim the ERTC, but they cannot claim the credit on the same wages that were used to calculate PPP loan forgiveness.
Q. How long can I claim the employee retention tax credit for franchises?
A. The ERTC is available for all four quarters of 2021, with a maximum benefit of $28,000 for the full year. The credit must be claimed by Dec. 31, 2021.
Q. What if I'm not sure if I'm eligible for the employee retention tax credit for franchises?
A. Franchise businesses should consult with a tax professional or financial advisor to determine their eligibility for the ERTC. Penalty relief is also available for claims related to the credit.
