As one part of the Coronavirus Aid, Relief, and Economic Security Act (CARES), the Employee Retention Credit has helped many keep some or all of their full-time employees on the payroll without bankrupting their already struggling business. This benefits both companies and their employees who have been the most affected by COVID-19.
What is the “Employee Retention Credit?”
The Employee Retention Credit usually referred to simply as the ERC, is a refundable credit given by the IRS. It provides up to $5,000 for each full-time employee held on the payroll from March 13, 2020, through the end of that year. A credit of up to $14,000 helps businesses retain full-time employees from January 1, 2021, through June of 2021.
This credit refunds the social security taxes paid on behalf of the qualifying employee and includes the additional credit as an “overpayment.” It can provide a hefty incentive for allowing them to keep their full-time status.
Does Your Business Qualify for the ERC?
Just as with many IRS credits, the ERC has a few qualifications. These requirements for the Employee Retention Credit are primarily based on how much the pandemic has affected your business’ income. For example, if you have had to suspend business operations entirely or your gross receipts have declined significantly, you may qualify. You may also qualify based on a decline in gross receipts on a quarter-by-quarter basis, comparing 2019 with 2020 financial results.
These are the most significant factors in determining eligibility for the credit. However, there are other things that the IRS may consider when deciding whether your business will receive the Employee Retention Credit.
How Do You Get the Credit?
The complete instructions for receiving the ERC are listed on the IRS website. However, there is a limited window for claiming the credit, and you will need to submit the proper documentation quickly. The business attorneys at Segal Duffek Moen recommend that you seek advice as to whether your company qualifies from your bookkeeper or tax accountant.