The Employee Retention Credit was a payroll tax credit that was included as part of the CARES Act. The goal of the ERC was to help businesses keep employees on the payroll during the coronavirus pandemic.
If you run a small business, there are several things that you need to know about this credit before you pay taxes. So keep on reading to learn more!
1. How Much Is the Credit Worth?
The credit is capped at $5,000 per employee. It applies to certain employment taxes on wages paid to workers.
If the credit is more than the company’s total tax liability, then the balance of the credit will be processed and refunded.
There are two types of businesses that are able to receive this tax credit. In order to be eligible, your 2020 business operations needed to be fully or partially suspended because of government orders.
Self-employed people are not eligible for the credit. This credit applies to qualified wages that were paid during this time period.
Also, be aware that even though the Employee Retention Credit has technically expired, you still might be able to apply.
3. Qualified Wages
This payroll tax credit applies to wages during a time when operations were suspended. The specific wages that are able to be considered for the credit will be determined by the number of employees that a company has.
Does your company have more than 100 workers? If it does then qualified wages are considered to be the wages that are paid to a worker for the time that the worker isn’t providing services because of Covid.
Does your company have less than 100 workers? If this is the case, then qualified wages refer to all wages. This includes health plan costs that are allocated to wages.
It doesn’t matter if the paid workers were able to work or not. If the credit is more than the company’s liability for payroll taxes, the company will be able to get a refund.
4. How the Employee Retention Credit Affects Other Government Relief
Is your company getting a Small Business Interruption Loan through the Paycheck Protection Program? If so, you won’t be eligible for the ERC.
Also, wages for this credit don’t include wages for which the company got a tax credit for paid family and sick leave.
Wages counted for the ERC can’t also be counted for the credit for paid leave under section 45S of the Internal Revenue Code.
Do You Qualify for the Employee Retention Credit?
From cost savings to employee retention, the Employee Retention Credit can bring a lot of benefits to small businesses like yours. If you think you might qualify for this credit, you should speak to an accountant and see if you can apply.
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