Employee Retention Credit: What You Need To Know
The pandemic was difficult for everyone. While businesses with frontline workers were overworked, other companies struggled to stay afloat. The Employee Retention Act was designed to help.
What is the Employee Retention Credit (ERC)?
The Employee Retention Credit is a credit program designed to help businesses keep their employees during the pandemic by refunding a portion of employee wages as well as a portion of the money paid for their health insurance.
The Internal Revenue Service states that "wages (including certain health plan costs) up to $10,000 can be counted to determine the amount of the 50% credit." The maximum credit you can claim is $5,000 per employee.
Who qualifies for the Employee Retention Credit?
To be eligible, your business must:
- Have experienced a partial or full shutdown due to COVID-19, or
- Have experienced a significant decrease in gross receipts (at least 50% compared to the same quarter in 2019)
If you are eligible for the credit, you can claim it for each eligible employee that you retain.
What dates does the Employee Retention Credit apply to?
The credit was originally available for wages paid from March 13, 2020, through December 31, 2020. The ERC was extended through June 30, 2021, and again through December 31, 2021.
How do you claim the Employee Retention Credit?
You can claim the credit on your quarterly IRS Form 941. You can also elect to receive the credit in advance by reducing your federal employment tax deposits. Discussing the Employee Retention Credit with your tax advisor before filing is best.
Can you still claim the Employee Retention Credit?
There is still time to claim your Employee Retention Credit. In fact, there are specific Employee Retention Credit services that can help you obtain your credit retroactively from the Internal Revenue Service.
How can you use the Employee Retention Credit?
The credit can be used to offset the employment taxes you owe, or you can receive a refund if you have already paid your employment taxes.
Is ERC taxable income?
No, the ERC is not taxable income.
Do the owner's wages or family members' wages qualify for ERC?
The credit is available for wages paid to qualifying employees. This includes wages paid to owners and family members of businesses and other qualifying employees.
The Employee Retention Credit is just one of the many programs designed to help businesses during the pandemic. Please contact your accountant or tax advisor if you have any questions about whether you qualify for the Employee Retention Credit or how to claim it.