Could the Employee Retention Credit Benefit Your Business |
Posted: February 1, 2023 |
Businesses that have experienced financial hardship as a result of COVID-19 may be eligible to benefit from the Employee Retention Credit, a brand-new refundable tax credit. The credit, worth 50% of qualifying wages paid by an eligible employer up to $10,000, is intended to encourage businesses to keep employees on their payroll. What qualifies as an employer? There are two types of acceptable employers: Due to COVID-19 during a calendar quarter, the employer's operations are entirely or partially suspended by government order. The employer's gross receipts for the comparable quarter in 2019 were less than 50% higher. After the end of the quarter in which the employer's gross receipts exceed 80% of a comparable quarter in 2019, they are no longer eligible. How are the credits determined? The credit is equal to 50% of the first $10,000 in qualifying wages paid. In addition to cash payments, wages also include a portion of the cost of employer-provided health insurance. In general, qualified health plan expenses cover both the employer's share of the cost as well as the employee's share of the cost through pretax salary reduction contributions. The amount that the employee contributed after taxes is not included. What is an acceptable wage? Earnings that are based on the typical number of employees a business had in 2019 are referred to as qualifying wages. Depending on the size of a business, there are two different metrics: companies with fewer than 100 workers. The credit is based on wages paid to all employees, regardless of whether they worked or not if the employer had 100 or fewer employees on average in 2019. The employer still receives the credit even if the workers were paid for full-time work and put in full-time hours. Employers who employ more than 100 people. Only wages paid to employees who did not work during the calendar quarter are eligible for the credit if the employer had more than 100 employees on average in 2019. How will I get the credit? Even though there are numerous tax credits available when filing a tax return, the employee retention credit differs in that employers can receive immediate reimbursement by lowering the amount of payroll tax deposits that are necessary. Taxes that have been deducted from employees' pay include payroll taxes, which also include federal income tax withheld, taxable wages and tips for social security and Medicare, and additional Medicare tax withholding. These payroll tax deposits are typically reported on Form 941, Employer's Quarterly Federal Tax Return, once every three months. Getting ERC advance By lowering their federal payroll tax deposits, employers can receive an ERC advance payment of the Employee Retention Tax Credit (ERTC). This indicates that the employer would avoid having to wait for a government refund by deducting the advance credit's value from payroll tax deposits. However, if the credit amount is greater than the payroll tax deposits, the employer would have to work out a deal with the government to pay the difference. The advance payment's size is constrained by regulations set forth by the government.
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