Whether from Cooper Norman’s webinars, tax planning, or other third parties, it is likely you’ve heard of the Employee Retention Credit. This highly popular employment tax credit was designed to encourage businesses to keep workers on their payroll and support small businesses and nonprofits through the Coronavirus economic emergency.
Eligible employers may claim the credit against employment taxes equal to a percentage of qualified wages paid to employees beginning in 2020 as follows:
An eligible employer is defined as:
If the employer was not in existence at the beginning of the same calendar quarter in 2019, then the employer may use the same calendar quarter in 2020. Employers may also elect to determine if they meet the gross receipts test using the immediately preceding calendar quarter compared to the corresponding calendar quarter in 2019.
A “recovery startup business” means any employer that began carrying on any trade or business after February 15, 2020 with average annual gross receipts of $1,000,000 or less, and is otherwise not an eligible employer described in items 1 or 2 above.
Qualified wages are based on the business’s average number of full-time employees in 2019 (or 2020, if not in existence in 2019).
In general, the amount of the credit is 70% of qualified wages paid to an employee up to $10,000 per quarter. Recovery startup businesses may claim a maximum credit of no more than $50,000 per quarter. Qualified wages may include amounts paid to provide and maintain a group health plan that are excluded from employees’ gross income.
Employers must report their qualified wages on their federal employment tax returns, usually Form 941, Employer’s Quarterly Federal Tax Return. They can reduce their required deposits of payroll taxes withheld from employees’ wages by the amount of the credit.
Small employers, those that had 500 or fewer employees, may elect for any calendar quarter to receive an advance payment of the credit not to exceed 70 percent of the average quarterly wages paid by the employer in calendar year 2019.
There are limitations when considering an eligible employer’s ability to claim the employee retention credit. A double tax benefit is not allowed. Other credits that impact the employee retention credit include, but are not limited to, the following:
Because of the enhancements and expansion of the employee retention credit, your business may now have an opportunity to take the advantage of this tax benefit. Please contact your Cooper Norman representative to discuss the employee retention credit and other business tax relief. We’ve created a team of professionals prepared to aid you in claiming this credit and answer any questions you may have.