Employee Retention Credit: An Essential Guide

The Covid-19 outbreak has disrupted economic activities all over the country. Therefore, the Internal Revenue Service (IRS) has implemented measures to offer financial relief to businesses.

One of those provisions is the Employee Retention Credit (ERC). This initiative aims to help small businesses keep their employees on their payroll.

What Businesses Qualify for the Employee Retention Credit?

The credit is geared towards businesses that have been impacted by the coronavirus outbreak. The qualifying businesses fall into two basic categories:

  • The business is in total or partial suspension by government order due to the coronavirus outbreak during the calendar quarter.
  • The employer’s gross receipts are below 50% of the comparable quarter in 2019.

It’s important to note that once your receipts go above 80% of a comparable quarter in 2019, you no longer qualify for the credit.

How Much Is the Employee Retention Credit Worth?

The amount of the Employee Retention Credit is equal to 50% of qualifying wages paid up to $10,000. Wages paid after March 12, 2020, and before January 1, 2021 are eligible. The wages considered include as well as portion of the cost of employer provided health care.

What Wages Qualify for the ERC?

The qualifying wages are determined considering the size of the business.

  • If the employer had 100 employees or fewer on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not.
  • For employers with more than 100 employees on average in 2019, the credit applies only to wages paid to workers who did not work during the calendar quarter.

How Would I Receive the ERC?

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ taxes by the amount of the credit.

If your tax deposits are not enough to cover the credit, then you may receive an advance payment by submitting form 7200 to the IRS

It’s important to know this and other initiatives to navigate the current circumstances. Our knowledgeable experts at JT Tax Services will help you so you can take advantage of all the relief initiatives you are eligible for.

At JT Tax Services we have the experience, the knowledge and the drive to assist you. With our advice, you can file your taxes with the peace of mind that comes with knowing that you are limiting your liability while staying compliant with federal and state tax regulations.

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