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How to Benefit From the Employee Retention Credit?

As a business owner, you are constantly looking for ways to save money and reduce costs, right?

The cost of employee wages can be one of the biggest expenses for businesses, but it's not something that can easily be cut back on.

Fortunately, there is a way to get some relief from these costs with the Employee Retention Credit. This tax credit allows businesses to claim up to 50% back on qualifying wages paid in 2020 and 2021. With this credit, you can save your business money while still providing great benefits for your employees.

Keep reading to learn how to benefit from this tax credit!

What Is the Employee Retention Credit?

The Employee Retention Credit (ERC) is a refundable tax credit available to businesses that have experienced financial hardships due to the COVID-19 pandemic. The ERC allows businesses to claim up to 50% of their first $10,000 in wages paid or incurred between March 13 and December 31, 2020, for each employee whose employment was affected by the pandemic.

The ERC is available to employers of all sizes, regardless of whether or not they received a Small Business Administration (SBA) loan.

How to Benefit from Employee Retention Credit

Now that you understand what the Employee Retention Credit is, you may be wondering how to benefit from it. To take advantage of this tax credit, there are a few things that you'll need:

1. Determine If You're Eligible

To determine if eligibility requirements are met, businesses must consider their financials since the COVID-19 pandemic began. Has gross revenue decreased during this time? Or, has a government-mandated restriction forced the business to suspend operations?

If either of these scenarios is true, then the business may qualify for the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. While understanding all of the guidelines surrounding this program is an important step in understanding a business’s eligibility for it, it will be worth it: the ERC can provide much-needed financial resources during these challenging times.

2. Figure Out How Much You Can Claim

Understanding how much you can claim in employee wage credits during tax season can be a daunting task. Different businesses, depending on their size, will require different calculation processes. Setting up an organized system to keep track of each employee's wages throughout the year is essential to maximize the amount of credit that can be received and reduce surprises come tax season.

Start by creating a spreadsheet or other visual document that records how much each employee earns every month. Once you have collected your data for the year, use it to calculate an average monthly wage for each employee and apply this figure to the applicable tax regulations to accurately calculate the credit that you are eligible to claim.

3. Claim the Credit

Filing IRS Form 941C to claim credit is necessary for employers to get their refund. Businesses need to weigh potential tax breaks, such as the amounts eligible for this credit, compared to other forms of relief.

Knowing exactly how much can be claimed upfront can help businesses make wise decisions about budgeting, payroll, and spending in general. Additionally, claiming the credit properly is something that requires specialized advice, as filling out Form 941C incorrectly could potentially lead to penalties or deductions.

Top Questions to Learn More About Employee Retention Credit

Now that you know how to benefit from the Employee Retention Credit, let's take a look at some of the top questions people have about the credit.

Who Is Eligible for the Employee Retention Credit?

The Employee Retention Credit (ERC) provides much-needed financial relief to employers who have seen a significant disruption due to the pandemic. To be eligible, employers must meet specific criteria; businesses whose gross receipts have significantly decreased and those that have had to suspend operations due to government-mandated COVID-19 restrictions qualify for assistance.

The ERC can be a welcomed source of cashflow during these difficult times, helping companies tide over until it's safe to resume business as usual.

What Is the Maximum Amount of Credit I Can Claim?

Figuring out the maximum Credit you can claim for COVID-related expenses can be tough. According to the IRS guidelines, the maximum credit one can claim is 50% of the first $10,000 in wages paid or incurred between March 13 and December 31, 2020, for each affected employee's wages. There is also a slightly different formula that is applied for wages paid or incurred in 2021, for which a credit can be claimed.

This credit helps you save money and protect against some of the losses that businesses have suffered during this uncertain time. With the wide-ranging effects of the pandemic, it is important to take advantage of all available options to help minimize possible financial issues.

How Do I Claim the Credit?

With the new paycheck protection program to help businesses during the pandemic, employers can now receive tax credits as an incentive. The credit is refundable and helps offset the costs of employee wages.

Claiming the credit is relatively straightforward, and requires employers to fill out IRS Form 941C and file it with their tax return. Once the form is submitted and approved, employers will then be refunded the amount of credit they are eligible for by the IRS.

Are There Any Limitations on Claiming the Credit?

Yes, there are certain limitations to claiming credit. For example, employers cannot claim the credit if they have received a refundable tax credit under the Families First Coronavirus Response Act. Additionally, employers cannot claim the credit for wages paid to family members or those who own more than a 50% stake in the business.

Benefit from the Employee Retention Credit

Staying on top of the details surrounding employee retention tax credit will help ensure that you get the help you need. With a little extra effort and help from the tax help network, you can make sure you can correctly claim employee retention credit and avoid decreasing your workforce size.

Looking for more information about what we can do? Get in touch with us at Tax Help Network today to see how we can help.