The Tax Cuts and Jobs Act of 2017 established the Employee Retention Credit (ERC) to help businesses keep their workers during the COVID-19 pandemic. The credit is available to eligible employers who retain their employees and pay them qualifying wages from March 13, 2020, through December 31, 2020. Keep reading to learn more about how to apply for employee retention credit.
Personnel costs make up a significant portion of most businesses’ expenses, so the possibility of losing some or all of that staff can be very distressing. The Employee Retention Credit is one way the government is trying to help employers keep their workers during this difficult time.
To qualify for the credit, eligible employers must have kept a minimum number of employees on their payroll between March 13, 2020 and December 31, 2020. Eligible employers must also pay their eligible employees at least the Federal minimum wage for all hours worked during that time period.
What You’ll Need to Apply for the Employee Retention Credit
To apply for the ERC, you’ll need to file Form 941, Employer’s Quarterly Federal Tax Return. You can claim the credit on Form 941 for each quarter in which your business meets the eligibility requirements. You must complete and attach Schedule R, Credits for Qualified Retirement Plan Contributions and Payroll Taxes Paid, to Form 941 when you file it.
You’ll also need to file Form 945, Annual Return of Withheld Federal Income Tax, once a year if you withhold federal income tax from your employees’ wages. If you’re required to make payments of federal income tax for your employees but don’t withhold taxes from their wages, you must still file Form 945. Be sure to keep good records of your payroll and wage expenses—you’ll need them when you file your tax return and claim the ERC.
How Much is the Employee Retention Credit Worth?
The maximum amount of the credit is $5,000 per employee per quarter. The credit is 50% of qualifying wages paid up to a maximum of $10,000 per employee for all calendar quarters. For example, if you paid an employee $8,000 in qualifying wages during a calendar quarter, you could receive a credit of $4,000 (50% x $8,000). But if you paid that same employee $10,000 or more in qualifying wages during a calendar quarter—even just one dollar more—you could only receive a credit of $4,000 (50% x $10,000) for that employee during that quarter. Wages paid after December 31, 2020, do not qualify regardless of when they were earned.
Conclusion:
The Employee Retention Credit can help your business keep its workers during these difficult times. If you’re eligible and choose to claim the credit, you’ll need to file Form 941 and complete Schedule R. Be sure to keep good records of your payroll and wage expenses so you can accurately calculate the amount of the credit you’re entitled to receive. Call o