What is the Employee Retention Tax Credit & How Do you Qualify?
What is Employee Retention Credit and How to Qualify for it?
The effects of the 2020 COVID-19 disaster are still rippling through the country, including the financial health of many small businesses. Most of these businesses at risk (which is, essentially, any business deemed “non-essential” by the government orders during the first COVD related shut down in 2020) are already taking advantage of, or have taken advantage of government assistance.
Employee Retention Credits are tax credits that can be used to offset wages paid during certain calendar quarters of 2020 and 2021. Most small and large employers should be focusing more on employee retention, despite whether or not they qualify for these tax credits – an employee retention policy is a great first step towards keeping staff feel supported, fulfilled, and happy in their work. If your business is running out of funds, such as EIDL or PPE stimuli, employee retention can only improve the financial health of your company at large.
What is The Employee Retention Tax Credit?
Employee Retention Credits (ERTC) are tax credits used by employers to offset the cost of certain wages paid between March of 2020, through September 30, 2021 (ultimately). These credits are part of an original pitch for the CARES act of 2020 to be used to encourage businesses to retain as many of their staff on payroll as possible.
These credits are to be used to support small businesses in this time of uncertainty, and to help them reinvest in their staff. In order to qualify for ERTC, a business must have taken, or applied for, a loan under the initial PPP These credits are to be used to qualify up to 70% of paid wages, and would continue to be qualified through the first half of 2021.
These credits cannot be used on wages that have already been forgiven, or are expected to be forgiven, and they must be wages subject to FICA taxes. For more information on the amount of help that can be claimed, use this ERTC calculator. Ultimately, these credits will be filed on Form 941.
How Do I Qualify for Employee Retention Credit?
A business that wishes to claim ERTC tax benefits needs to meet certain conditions.
- They must have applied for a PPP loan. The business does not need to have gotten a PPP loan, but they must have applied for one.
- Meet one of the following conditions:
- An employer that was fully or partially suspended due to a COVID-19 related government issued order
- An employer with a significant gross decline in gross receipts – they must be 50% lower than the same calendar quarter from 2019. Calculations may be done for businesses that were not in existence in 2019.
These conditions have evolved and changed within the last year, by way of the CARES Act, the Consolidated Appropriations Act of 2021, and the American Rescue Plan. And remember, in order to be eligible for the credit, the wages being claimed must have been paid between March 30, 2020, until September 30, 2021, and the wages must have been subject to regular FICA taxes. Understanding how and why these changes in legislation occurred can help you determine the maximum credit that can be claimed for your business.
The Cares Act of 2020 originally defined the size of a small business to not exceed 100 full time staff members. This is why the 2020 tax credits are only available to businesses that meet this original criteria. The Consolidated Appropriations Act of 2021 was then passed, which increased the number of qualifying employees (while remaining labeled as a small business) to 500 full time employees. Following, the credits made available in 2021 can be maxed out to 500 employees, rather than 100. .
Employee Retention Strategies
The purpose of this tax credit was to encourage businesses to keep their staff on payroll. During a time when many professionals report feeling “stuck” in their careers, and a tricky employer/employee balance, employee retention can be difficult to achieve. One way to start is to be sure to conduct exit interviews with each employee to leave his/her position.
This will help the employer to get a better idea of what the culture is like for their employees, and what they want and need. From there, cater to the staff you have, and invest in the ones you want to keep around. With so many young professionals entering an unforgiving business landscape, and current ones who have been disenchanted with their work, managers up and leaving seemingly without warning, it’s now more important than ever to take care of your staff.
This should be done by being sure to pay them reasonable, competitive wages, and continue to invest in training and orientation for new staff. The more engaged and educated your staff can be, the more likely they are to stick around. There should be opportunities for staff to move up. Some companies use methods like profit sharing, increased perks and wellness offerings, recognition and reward systems, all in order to help their staff feel like an important part of a team. Employees want to be heard, and their feedback to be seriously considered, and be treated like valuable members of their teams.
Employers should be considering these ERTC credits as money left on the table, should they decide not to take advantage of them. Any employer with questions, or curiosity of how much they would qualify for, follow this link for more information.
These tax credits are available for most businesses who have been hit financially by the COVID-19 crisis, and should be considered valuable resources to be used in the employees’ benefit. Employee retention, regardless of whether they qualify for the tax credits, is an important part of any business’s financial health policies.
Investing in your staff, offering them incentives and more engaging work, and being as flexible as possible will help your business stand out in a time where many professionals are feeling underpaid, underappreciated, and overworked.
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