With the ongoing pandemic, business owners are facing financial challenges that threaten their operations. In response, the government has implemented the Employee Retention Tax Credit (ERC) to provide financial relief to businesses. This tax credit can be vital to businesses affected by the pandemic, but many business owners are unsure if they qualify for it. In this blog post, we will discuss who qualifies for the ERC and how to take advantage of it.
What is the Employee Retention Credit?
The ERC is a refundable tax credit available to businesses affected by the COVID-19 pandemic. It is designed to help businesses retain their employees by providing a tax credit to offset employment taxes. The credit is worth up to $26,000 per employee and is available for wages paid between March 12, 2020, and December 31, 2021.
Who qualifies for the Employee Retention Credit?
Businesses that were forced to fully or partially suspend operations due to government orders related to COVID-19 or that experienced a significant decline in gross receipts may qualify for the ERC. For businesses with less than 500 employees, the credit is available for wages paid to all employees during the covered period, regardless of whether they were working or not. For businesses with more than 500 employees, the tax credit is only available for wages paid to employees who were not working during the covered period.
How to Take Advantage of the Employee Retention Credit
To claim the ERC, businesses can report it on their quarterly tax filings. Alternatively, they can file Form 941-X to claim the credit for prior quarters. Businesses can also request an advance payment of the tax credit by submitting Form 7200. The best way to ensure you are claiming the right amount is to work with a qualified CPA who can guide you through the process.
It’s essential to note that businesses cannot claim both the ERC and the Paycheck Protection Program (PPP) loan for the same wages. Additionally, businesses that receive the Shuttered Venue Operators Grant, Restaurant Revitalization Fund, or other similar grants are not eligible for the ERC.
The Employee Retention Tax Credit provides a significant opportunity for businesses to stay afloat during the pandemic. Being informed about who qualifies and how to take advantage of the credit is an essential step for business owners. However, navigating the tax code is never easy, and you must seek professional advice to ensure you make the most out of the ERC. Contact a tax professional to help you understand your eligibility and maximize your tax credit.