The US government introduced the Employee Retention Credit (ERC) as a tax credit to help businesses retain their employees during the COVID-19 pandemic. This credit has been extended to cover the first two quarters of 2021, and it can provide significant financial ERC Benefits to companies that qualify. In this article, we will explore the benefits of ERC and how it can boost your financial health.
What is Employee Retention Credit?
The employee retention credit is a refundable tax credit that is available to eligible employers who retained their employees during the COVID-19 pandemic. The credit is equal to 70% of qualified wages paid to employees, up to a maximum of $10,000 per employee per quarter. This means that eligible employers can receive up to $14,000 per employee for the first two quarters of 2021.
Who is Eligible To Take Help From ERC Benefits?
To be eligible for employee retention credit, a company must have experienced a significant decline in gross receipts or been subject to a full or partial suspension of operations due to government orders related to COVID-19. The decline in gross receipts must be at least 20% in comparison to the same quarter in 2019.
Benefits of Employee Retention Credit
The ERC Benefits are significant. First and foremost, it assists businesses impacted by the COVID-19 pandemic financially. The credit can help companies retain their employees and avoid layoffs or furloughs. This, in turn, can help businesses maintain their operations and continue to provide goods and services to their customers.
Secondly, employee retention credit can help businesses reduce their tax liability. If the amount of the credit exceeds the company's tax liability, the company will receive a refund of the excess. This is because the credit is refundable. This can provide a much-needed cash infusion for businesses that are struggling financially.
How to Claim Employee Retention Credit
To claim employee retention credit, eligible employers must report their qualified wages and the amount of the credit on their quarterly employment tax returns. Employers can take help from an ERC Credit Company. The credit can be claimed against the employer's share of social security tax or railroad retirement tax. The employer will receive a refund if the amount of the credit exceeds their share of these taxes.
Limitations of Employee Retention Credit
While employee retention credit provides significant benefits to eligible employers, there are some limitations to keep in mind. First, you cannot claim credit for wages paid with funds from a forgiven Paycheck Protection Program (PPP) loan. Additionally, the credit cannot be claimed for wages that are used to calculate other tax credits, such as the Work Opportunity Tax Credit or the Research and Development Tax Credit.
Conclusion
Employee retention credit is a valuable tool that can help businesses retain their employees and reduce their tax liability during the COVID-19 pandemic. Eligible employers should take ERC Benefits to boost their financial health and maintain their operations. While there are some limitations to keep in mind, the benefits of employee retention credit far outweigh any potential drawbacks. If you believe your business may be eligible for employee retention credit, consult with a tax professional to determine your eligibility and how to claim the credit.