The Employee Retention Credit (ERC) is a valuable relief measure that incentivizes businesses to maintain their workforce during the COVID-19 pandemic. However, claiming the credit can be a complex and time-consuming process, requiring businesses to navigate eligibility criteria, calculate credit amounts, and file necessary forms. This article will discuss the steps business owners should follow to claim the Employee Retention Credit.
1. Determine Eligibility: The first step in claiming the Employee Retention Credit is to determine eligibility based on the criteria outlined by the Internal Revenue Service (IRS). Businesses must meet specific eligibility requirements, including experiencing a significant decline in gross receipts or a full or partial suspension of operations due to government orders.
2. Calculate the Credit Amount: Once eligibility is established, businesses must calculate the credit amount based on eligible wages and qualified health plan expenses. For 2020, the highest Employee Retention Credit that an employer can receive per employee is $5,000. For 2021, the credit is $7,000 per employee per quarter, with a maximum credit of $28,000 per employee. Qualified health plan expenses can also be included in the credit calculation.
3. File Necessary Forms: Businesses can claim the Employee Retention Credit on their quarterly employment tax returns, using Form 941. Alternatively, eligible businesses can file Form 7200, Advance Payment of Employer Credits Due to COVID-19, to receive advance payment of the credit before the quarterly return is filed.
4. Maintain Required Documentation: To claim the Employee Retention Credit, businesses must maintain required documentation, including records of eligible wages and qualified health plan expenses. Documentation should be kept for at least four years and made available for IRS review upon request.
5. Consider Interactions with Other Relief Programs: Businesses must consider the interactions between the Employee Retention Credit and other relief programs, such as the Paycheck Protection Program (PPP). If a business received a PPP loan, they may be ineligible for the ERC or must carefully calculate the credit amount to avoid double-dipping.
The Employee Retention Credit is a valuable relief measure for businesses struggling to maintain their workforce during the COVID-19 pandemic. Claiming the credit can be a complex and time-consuming process, requiring businesses to navigate eligibility criteria, calculate credit amounts, and file necessary forms.
The team at Talley has dedicated an extensive amount of time to meticulously study the laws, regulations, and FAQs that are consistently updated regarding the ERC and PPP. We are more than prepared to support you throughout this process. Whether you require a swift answer to a brief query or need comprehensive assistance with the application or refund procedure, we are here for you. Don't hesitate to contact us today.