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Major Benefits To Expect When Applying For Employee Retention Tax Credit

In January 2020, the United States experienced an unemployment level of 3.6%. At that time, it was one of the lowest levels that the country had seen in the last five decades. In February 2021, however, studies reveal that 8.5 million fewer people were employed than in February 2020. Everyone knows the reason for this sudden fall. The Covid-19 pandemic and the reactions of the federal, state, and local governments have caused numerous companies to either close or downsize. To cope with and minimize the damage, the United States’ federal government passed the Coronavirus Aid, Relief, And Economic Security (CARES) Act, including numerous benefits of the Employee Retention Tax Credit (ERTC). Before jumping directly to find its multiple benefits, let us know more about ERTC in detail. 

What Is Employee Retention Tax Credit?

Everyone always has the question, how does the Employee Retention Tax Credit work? The Employee Retention Tax Credit is a CARES Act relief measure for businesses. Eligible employers who are able to retain employees on payroll can claim this fully refundable tax credit. Moreover, the Consolidated Appropriations (CAA) Act expanded the ERTC in December 2020. In the following paragraphs, we will find a wide range of benefits of the Employee Retention Tax Credit. 

Benefits Of Employee Retention Tax Credit

One of the major benefits of the Employee Retention Tax Credit is that it allows businesses to take a 70% tax credit of up to $10,000 of an employee’s qualifying wage every quarter in 2021. Moreover, the maximum credit for each quarter caps at around $7,000 for each employee. 

Between 13 March to 31 December 2020, the refundable Employee Retention Tax Credit was equal to 50%; however, the claim percentage was increased, thanks to CAA. In short, one can say that the Employee Retention Tax Credit can save your business a huge amount of money in taxes. Let us explore its benefits in detail. 

Lowers Social Security Tax Liability

The Employee Retention Credit is proven to reduce the social security tax liability, but how does this work? If the credit you get through the Employee Retention Credit exceeds your social security tax liability, you qualify for a refund. The amount of these credits becomes reconciled on the employer’s form 941 at the end of the quarter. 

The Credit Has Been Extended To 2021

Undoubtedly, the pandemic will continue to affect businesses in different regions. Thus, the federal government expanded the Employee Retention Tax Credit into 2021. Fortunately, it expands into all quarters of the year. 

This extension gives companies several new advantages. For instance, the 2021 update is the reason that employers can now get 70 percent of the first $10,000 of eligible wages for each employee. 

Likewise, the 2021 expansion now consists of the employer’s part of Medicare taxes for the third and fourth quarters. Furthermore, it has expanded on the definition of an eligible employer to encompass a new category; the new addition is known as a recovery startup business. 

Many Companies Can Apply For Tax Credit Benefits

Who qualifies for the Employee Retention Tax Credit? The CARES Act generally specifies two qualifying conditions for businesses. Firstly, a business must have suffered partially or fully due to the government rules. Alternatively, a business must have suffered a major decline in gross receipts. 

In the 2020 Employee Retention Credit qualifications, significant loss required you to experience a loss of 50% for a quarter. On the other hand, the qualifications were more flexible in 2021. 

Instead, the 2021 criteria specified that you must face a decline of more than 20%. Also, employers should compare their present quarterly revenue to the same quarter in 2019 to find if they qualify. 

You Can Claim ERC For Numerous Employees

Different-sized companies can claim the Employee Retention Tax Credit for huge numbers of employees. For example, a small employer can claim Employee Retention Credit on all its staff’s wages. As per the CARES Act, a small employer is someone with 100 or fewer employees. 

However, if you have more than 100 employees, you can still claim an Employee Retention Tax Credit on some of your workers, but those workers must fall under the ‘not working’ category. 

What does this require? Unfortunately, this could take numerous forms. To get the best grasp of the full procedure, one should always consult a professional advisor. Irrespective of which type of business you run, these retention credits can have tremendous benefits for your company. Moreover, a professional advisor will help you see how the number of workers affects the way you take a tax credit. 

Easy To Claim

Another major benefit of the Employee Retention Credit is that it can easily be claimed if an individual qualifies. All an individual has to do is claim it on the federal employment tax returns with form 941. 

Moreover, many individuals don’t realize that they qualify for this refund on the Employer’s Quarterly Federal Tax Return. No need to worry about such cases; one can easily amend your Employer’s Quarterly Federal Tax Return on form 941-X if they have determined that they have not qualified for the Employee Retention Credit. 

Different types of companies may have different ways of claiming credit. For instance, some companies can claim the credit on form 944 on their Employer’s Annual Federal Tax Return. One could also claim the credit on form 943 if you run an agricultural business. However, it is quite important to evaluate what options might be available for the type of business. 

Different Sectors Can Claim The Tax Credit

The Internal Revenue Service (IRS) has outlined the criteria for determining whether companies qualify in different sectors. These generally include tax-exempt entities, private-sector organizations, and non-profit groups. 

Colleges, universities, and several other government entities may also be eligible for the credit. Lastly, companies specializing in healthcare can also receive tax credits. 

Head over to the Business Tax Benefits websites if you have doubts, such as how to calculate employee retention credit? How to apply for Employee Retention Credit? Moreover, our experts will make sure you understand every single point about Employee Retention Credit. 

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