Employee Retention Credits

Employee Retention Credits

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What is an Employee Retention Credit?

The Employee Retention Credit is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Eligible employers can get immediate access to the credit or refund by filing an amended 941. Past employment tax deposits paid to the IRS are now eligible for a refund or credit.

For each employee, wages (including certain health plan costs) up to $10,000 can be counted to determine the amount of the 50% credit which equals $5000. Because this credit can apply to wages already paid after March 12, 2020, many struggling employers can get access to this credit by Amending the 1st, 2nd, 3rd and 4th quarter Payroll Tax Return Form 941 to claim refunds and credits.

You may also be qualified to receive Employee Retention Credits for 2021. The Employee Retention Credit for 2021 is $7000 and its 70% of wages. As a result of the new legislation, eligible employers can now claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum ERC amount available is $7,000 per employee per calendar quarter, for a total of $14,000 in 2021.

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How do I Claim Employee Retention Credits?

In order to claim the new Employee Retention Credit, eligible employers will report their total qualified wages and the related health insurance costs for each quarter on Amended quarterly employment tax returns for 2020, which will be Form 941X for most employers, beginning with the First quarter. The credit is taken against the employer's share of social security tax but the excess will be refundable under normal procedures.

All Business Who Filed for PPP Forgiveness

Employers that received a PPP Loan or filed for PPP Forgiveness are eligible to claim the Employee Retention Credit. However, the same wages can’t be counted both for seeking forgiveness of the PPP Loan and calculating the Employee Retention Credit.

If Your Business is Closed

Employers whose business operations are fully or partially suspended during a calendar quarter due to a governmental order is an Eligible Employer that may be entitled to the Employee Retention Credit.

Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either:
The full or partial suspension(aka Shutdown or Restriction as its called in California) of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19.
OR
A significant decline in gross receipts.

A significant decline in gross receipts begins:

On the first day of the first calendar quarter of 2020
For which an employer’s gross receipts are less than 50% of its gross receipts
For the same calendar quarter in 2019.

The significant decline in gross receipts ends:

On the first day of the first calendar quarter following the calendar quarter
In which gross receipts are more than of 80% of its gross receipts
For the same calendar quarter in 2019.

The credit applies to qualified wages (including certain health plan expenses) paid during this period or any calendar quarter in which operations were suspended less the PPP Loan Forgiveness.

These are just some of the changes made to the ERTC, which rewards employers that can afford to keep workers on the payroll during the COVID-19 crisis. Call (818) 528 - 5535 or text (310) 616-3240 for more information about this tax saving opportunity.