The Employee Retention Credit is a great tool for companies to use to help recruit and retain employees. However, it can be complicated to determine whether or not you are eligible. You also need to know how to calculate it and when to apply it. If you are not sure, you should consult with an expert. Aprio has experienced experts who can guide you through the process.
Employers with fewer than 500 full-time employees
Employers with fewer than 500 full-time employees are eligible for Employee Retention Credit (ERTC). This credit is designed to encourage businesses to retain their employees during an economic crisis. It is calculated based on qualified wages. Qualified wages are wages paid during a significant decline in gross receipts. Qualified wages cannot include wages paid to employees who provide services during a shutdown or suspension of operations. In addition, these wages cannot include any wages paid to employees who received employer tax credits for paid sick leave or paid family leave.
The Employee Retention Credit can be claimed on a federal employment tax return. Eligible employers may also claim a refundable credit against Social Security and Medicare taxes. For 2020, the credit is 70% of up to $10,000 in wages per employee. An additional advance payment of up to $7,000 per quarter for the first three quarters of 2021 is available to eligible employers.
To calculate the credit, qualified wages must be all wages paid to employees during the quarter when gross receipts declined by 20% or more. During the first day of a calendar quarter, qualified wages cannot exceed the equivalent duration of an employee's normal daily rate. A full-time employee is defined by section 4980H of the Internal Revenue Code.
Eligible Employers must have an average of at least 100 full-time employees during the quarter when gross receipts declined. Employers with more than 500 employees are not eligible for an advance.
There are two ways to calculate the credit. First, an employer can request an advance from the IRS. They must fill out Form 7200. When the IRS approves the advance, an employer can claim a credit on their federal employment tax return. Second, an eligible employer can report a credit on a CPEO aggregate form 941.
An ERC may be claimed on all qualified wages. To qualify, all full-time employees must be working at least 30 hours a week. Wages cannot include wages paid for sick leave or other days off. Generally, the pretax portion of the credit will be taken out of withheld taxes. However, an employer may also keep the credit.
Eligibility requirements
Employee retention credit, also known as ERTC, is a tax incentive designed to encourage businesses to retain employees. Businesses that have fewer than 500 employees can qualify for this program in the first two calendar quarters of 2021. If the company does not qualify in the first two quarters of 2021, it may be able to qualify in the second and fourth quarters of that year.
In order to qualify for ERTC, the business must have qualified wages. This means the employee's pay must not exceed $10,000 per quarter. Qualified wages vary depending on the size of the firm. It is not considered a qualified wage if an employee is paid vacation pay or paid sick leave.
Congress created the ERC as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). CARES was passed to encourage businesses to keep their employees during the COVID-19 pandemic.
The CARES Act created a test to determine if an organization qualifies for the ERC. Essentially, an organization must be able to prove that its gross receipts declined significantly during the calendar quarter. To determine if an organization meets this requirement, the gross receipts of the immediately preceding quarter are compared to the corresponding calendar quarter in the current year.
An eligible employer can claim a refundable credit against social security taxes equal to 70% of qualified wages. This amount is not subject to allowable health care costs, and the credit is not reported on the employee's gross income.
Eligible organizations can receive up to $26,000 in ERTC per employee. The program can be claimed retroactively, which is useful for companies that have suffered financial losses due to the COVID-19 pandemic. Moreover, the government offers resources and financial assistance to help eligible businesses recover.
The CARES Act has since been amended and expanded several times. For example, the American Rescue Plan Act extended the credit through 2021. Finally, the Small Company Disruption Credit was included in the Employer Surety & Disaster Tax Reductions Act of 2020. Ultimately, these changes have made claiming ERTC more accessible.
Calculation
The Employee Retention Credit is a refundable tax credit for businesses. It is worth up to $21,000 per year. In order to qualify, you must meet a number of requirements. These include having at least one employee working at least 30 hours per week.
The ERC is available for employers of any size. There are several ways to calculate the credit. Generally, it is the sum of the wages paid to full-time employees plus the amount of health insurance expenses incurred.
To qualify for the ERC, you must meet a series of qualifications. This includes having an average quarterly payroll of at least 70% of your total gross receipts in both Q1 and Q2. You also have to have a significant decline in your gross receipts in a calendar quarter.
To get the most out of the program, you may want to apply for advance payments. You can request to advance credit in up to three quarters. Depending on the size of your business, you can pay your employees up to $7,000 per quarter.
However, there are many different regulations and restrictions when it comes to claiming the credit. For example, you cannot claim the ERC for qualified wages on wages you paid to your employees for paid family medical leave. Furthermore, you cannot claim the credit for wages you paid to your employees on sick days.
If you are unsure of your eligibility, you should consult an accountant or attorney. In addition, you can visit the IRS website for more information. As a business owner, you are encouraged to take advantage of this credit to retain your employees.
The American Rescue Plan Act expanded the Employee Retention Credit. Now, it is easier to qualify for the program. A new rule introduced by Congress makes it even easier for small employers to make the most of this benefit.
In 2021, the ERC is expanded to 70 percent of qualified wages. A qualified wage is a wage that meets all of the above criteria. Qualified wages can be wages or tips.
Aprio's ERC experts
Employee Retention Credit (ERC) is one of the many tax relief programs that helps businesses in a tough economy. It can be used to offset payroll taxes and health care costs. As a result, ERC has become an increasingly popular option for business owners facing economic difficulties.
ERC can provide up to $26,000 in relief for every employee in 2022. However, many companies do not realize that they are eligible. The federal government offers guidance to ensure that small businesses are able to take advantage of this valuable credit. Thankfully, Aprio's team of dedicated ERC experts understands the intricacies of this credit. They have a wealth of experience on both sides of the equation, and they are considered national thought leaders on the topic.
Justin Elanjian is a partner in charge of Employee Retention Credit and Paycheck Protection Program services at Atlanta-based Aprio LLP. He leads a team of over 50 professionals that work to help clients maximize their eligibility for this program. Besides PPP, Justin also works with businesses to understand and take advantage of other stimulus package benefits. Whether it's COVID-19 relief funds or other tax incentives, he is committed to helping his clients strengthen their balance sheets.
Another member of Aprio's ERC Services group is Tommy McLaughlin. A native of Atlanta, Tommy has worked with middle-market businesses and executives for over eight years. His extensive experience in accounting and processes enables him to guide his clients through the forgiveness and loan application process. In addition to his expertise in ERC and PPP, he is also well-versed in CARES Act programs.
Another benefit of working with Aprio's ERC experts is the ability to work with their teams to increase the liquidity of your company. With access to a number of other credit programs, you can maximize the benefits you receive from these tax relief programs.
If you are ready to maximize your chances of obtaining the ERC you are eligible for, contact Aprio's ERC experts today. We'll be happy to discuss how we can help you get started.
