You may have heard of the Employee Retention Credit (ERC) and wondered what it is and how it could benefit your business.
The ERC is a refundable tax credit available to eligible employers for the wages paid to employees during the COVID-19 crisis.
Eligibility Requirements
To be eligible, employers must meet certain criteria. For calendar quarters in 2021, employers must have a quarter in which their gross receipts are less than 80% of what they were in the same quarter in 2019. Alternatively, employers can look to the prior calendar quarter and compare to the same quarter in 2019 to determine if there was a decline in gross receipts. For employers not in existence in 2019, they can compare the calendar quarter in 2021 to the same calendar quarter in 2020 to determine if there was a decline in gross receipts.
Employers must have a quarter where their gross receipts are less than 80% of the same quarter in 2019, or alternatively look to the prior calendar quarter and compare to the same quarter in 2019. If there was no decline in receipts, the business may qualify due to any type of shutdown or restrictions (hours or operation or capacity), or supply chain and vendor issues.
To maximize the potential benefits, employers should be sure to keep track of their gross receipts and compare them to the same quarters in either 2019 or 2020 in order to determine if there was a decline.
With that in mind, let’s look at eligible employers.
Eligible Employer
Eligible employers for the 2021 Employee Retention Credit (ERC) include 501(c)(1) organizations and colleges or universities whose primary purpose is to provide medical or hospital care. The ERC is a refundable tax credit designed to encourage employers to keep employees on their payrolls during the COVID-19 pandemic. It is available to employers for each calendar quarter in 2021, with a maximum credit of $7,000 per employee.
Employers must meet certain criteria to be eligible for the credit, such as having been in operation on February 15, 2020 and having experienced a significant decline in gross receipts. In addition, employers must be able to prove that they have experienced an economic hardship due to the COVID-19 pandemic.
The credit is available to employers for wages paid to an employee between March 12, 2020 and December 31, 2021.
To maximize the credit, employers should determine their eligibility and review their gross receipts and wages paid to employees.
As the credit is limited to specific employers, it’s important to make sure that your organization meets the requirements to qualify. In order to take full advantage of the credit, employers must understand their eligible wages and calculate the credit accordingly.
Qualified Wages
The Employee Retention Credit for 2021 can be maximized by understanding eligible wages and calculating the credit accordingly.
The maximum amount of the credit for employers with 500 or fewer average full-time employees in 2019 is 70% of wages paid between January 1 and September 30, 2021, up to $10,000 per employee per calendar quarter, including certain health care expenses.
Employers can have UNLIMITED part-time employees. Employers with more than 500 average full-time employees in 2019 may only claim wages paid to employees not providing services.
To maximize the credit, employers should understand which wages are qualified and calculate the credit accordingly.
Understanding the types of wages that qualify for the credit is important for businesses aiming to maximize their Employee Retention Credit.
Employers need to be aware of the different rules that apply to different types of employers, such as the increased maximum for employers with 500 or fewer average full-time employees in 2019, and the exclusion of wages paid to employees providing services for employers with more than 500 average full-time employees in 2019.
Additionally, employers should also be aware of the total maximum of $10,000 per employee per calendar quarter, including certain health care expenses, in order to maximize their credit.
By understanding the rules and regulations for the Employee Retention Credit in 2021, employers can maximize their credit and benefit from the incentive.
It’s important to understand which wages are qualified and to calculate the credit accordingly, in order to take full advantage of the credit.
This can result in significant savings for businesses, helping them to thrive in the current economic climate.
Credit Maximum
Maximizing the Employee Retention Credit in 2021 has become even more beneficial with the increase of the maximum amount per employee per quarter to $7,000. This means that employers who are eligible for the credit can receive up to $7,000 for each employee in 2021.
The increase in the maximum per employee per quarter for 2021 provides employers with the opportunity to receive more funds to help cover the costs associated with retaining employees. The increase in the maximum per employee per quarter for 2021 can help employers to cover payroll costs and other related expenses associated with keeping employees. This can help employers to avoid layoffs or furloughs and maintain a stable workforce.
Employers can use the funds to invest in employee development programs or to invest in new technologies that help to increase efficiency and productivity. The Employee Retention Credit is a valuable tool for businesses that need assistance in retaining their employees in 2021.
The increase in the maximum per employee per quarter for 2021 will help employers to receive more funds to help cover the costs associated with retaining employees and investing in their development. This is a valuable resource that employers should take advantage of in order to maximize the benefits of the Employee Retention Credit.
Conclusion
You’ve done the research and now you know what’s required to be eligible for the ERC in 2021.
The most important thing to keep in mind is that the employer must be a qualified employer, the wages must be qualified wages, and the credit is capped at a certain amount.
By following these requirements, your business can take advantage of this great benefit. Don’t forget to consult your ERC tax specialist if you have any questions.
With the right preparation, you can make sure your business is ready to take advantage of the ERC. Good luck!