Do you worry about losing your employees?
The job market is strong, so it shouldn’t be hard for eager employees to find another job. But you shouldn’t take their commitment for granted.
You can keep your best employees from leaving by improving the work environment and giving them what they need to thrive. But if you don’t have the time or money to make improvements, you should know how employee retention credit can help.
This credit is a perk that you can use to attract and keep employees. Read on to learn more about it and find out who is eligible.
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What is Employee Retention Credit?
The Employee Retention Credit is a refundable tax credit. It is for employers who experienced financial hardship during the pandemic. Its main purpose is to help businesses keep their employees during the said pandemic
The credit can go up to $10,000 per employee at the highest. It is available for wages paid beginning on March 13, 2020, and is set to expire on December 31, 2020. You can find more info about ERC on websites like ercsmart.com
Who is Eligible for the Employee Retention Credit?
Employers of all sizes are eligible for the employee retention tax credit. This even includes tax-exempt organizations. They are eligible as long as they had no choice but to suspend operations or reduce their hours of operation due to the COVID-19 pandemic.
It is available to employers that paid their employees after March 12, 2020, and before January 1, 2021. To be eligible for the credit, an employer must have experienced a decrease in gross receipts.
The decrease must be at least 50 percent when compared to the same quarter in the prior year. Wages paid to employees for work performed during the quarter are eligible for the credit.
How to Claim the Employee Retention Credit
To claim the credit, eligible employers must file Form 941 for each quarter of 2020. Form 941 is for the Employer’s Quarterly Federal Tax Return.
They should also submit Form 941-X for any quarter in which they claimed the credit. Form 941-X is also known as the Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.
Payments of the credit will get refunded to the employer through offsetting reductions in federal tax deposits. Employers can also get the credit through direct deposit refunds.
Employee Retention Credit Limitations
Although employee retention credit benefits are plenty, there are some limitations on how much you can get. The credit is equal to 50% of the employer’s share of the social security tax paid on wages paid to eligible employees during the covered period.
The largest credit is $5,000 per employee. This credit is not refundable and can only offset the employer’s share of social security tax. The credit is not available for any wages paid to an employee after December 31, 2020.
There are also limitations when it comes to the number of employees an employer has. For example, an employer with more than 100 full-time employees is not eligible for the credit.
Make Use of Employee Retention Credit
With employee retention credit, the amount of tax liability an employer would face if they laid off employees would be much lesser. This credit is a great way to keep employees on the payroll and avoid having to pay high termination costs.
If you are thinking of utilizing employee retention credit, consult your financial and legal advisers now. Doing so will ensure that it is right for your business.
Check out our other blog posts for more tips and guides on rebuilding your business after the pandemic.