Employee Retention Credit: What You Need to Know

As a response to the economic impact of the COVID-19 pandemic, the government has introduced the Employee Retention Credit (ERC) to help businesses keep their employees on the payroll. The ERC is a valuable resource for employers who have been impacted by the pandemic, and it provides numerous benefits for businesses. In this blog, we’ll cover everything you need to know about this credit, including who is eligible, how to calculate the credit, how to claim it, and the benefits businesses get when they apply for the ERC.

What is the Employee Retention Credit?

The Employee Retention Credit is a tax credit available to eligible employers to help offset the cost of keeping employees on the payroll during the COVID-19 pandemic. The credit is equal to 50% of qualified wages (up to $10,000 per employee) paid to employees after March 12, 2020, and before January 1, 2021.

Who is eligible for the Employee Retention Credit?

To be eligible for the ERC, an employer must meet the following criteria:

The employer’s business must have been fully or partially suspended due to a government order related to COVID-19 or the employer’s gross receipts must have declined by more than 50% compared to the same quarter in the prior year.

How to calculate the Employee Retention Credit?

The ERC is equal to 50% of qualified wages (up to $10,000 per employee) paid to employees after March 12, 2020, and before January 1, 2021. Qualified wages include salaries, wages, and tips paid to employees.

It’s important to note that the credit is capped at $5,000 per employee per year, regardless of the number of eligible employers. Also, the ERC can only be claimed for wages paid after March 12, 2020, and before January 1, 2021.

How to claim the Employee Retention Credit?

To claim the ERC, eligible employers must complete Form 941, Employer’s Quarterly Federal Tax Return. The credit will then be claimed on the quarterly return as a reduction in the employer’s federal tax liability.

Benefits of the Employee Retention Credit

The ERC provides numerous benefits for businesses, including:

Cost savings: The ERC provides a credit for 50% of qualified wages paid to employees, which can significantly reduce the cost of keeping employees on the payroll.

Employee retention: By offering a credit for wages paid to employees, the ERC provides support for employers to keep their employees on the payroll.

Increased cash flow: By reducing federal tax liability, the ERC provides additional cash flow for businesses, which can be used to meet other business expenses or to invest in the business.

In conclusion, the Employee Retention Credit is a valuable resource for employers who have been impacted by the COVID-19 pandemic. By offering a credit for wages paid to employees, the ERC provides support for employers to keep their employees on the payroll and weather the storm of the pandemic. Additionally, it provides numerous benefits for businesses, including cost savings, employee retention, increased cash flow, and a simplified application process. If you think your business might be eligible for the ERC, we recommend consulting with Bottomline Concepts.They are an experienced firm and have already recovered over $2.1 billion for over 13,000+ businesses just like yours.

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