Well, 2020 sure was one for the books! And, it looks like 2021 will have a similar streak. However, you—and your employees—don’t have to go through it all alone. In fact, by using the Employee Retention Credit when doing your taxes, you can give your business some help. Wondering what it is or how it works? We’ll go into detail below.
About the Employee Retention Credit
The Employee Retention Credit works as a refundable tax credit. Essentially, the credit can be applied to specific employment taxes.
Still don’t get it? The quick and easy definition is that this refundable credit helps your business keep paying its staff.
Here’s how the Employee Retention Credit works:
- Businesses are eligible to receive the ERC and Payroll Protection Program (PPP), but wages eligible for the ERC cannot be paid with PPP funds.
- For tax year 2021, the credit is 70% of qualified wages paid per employee, at up to $28,000 a year.
- For tax year 2020, the credit is up to 50% of each employee’s qualified wages, at up to $5,000 for the year.
- Employers with 500 or fewer full-time employees can apply the ERC towards all qualified wages paid to employees during those quarters.
How do I know if my business is eligible?
Two different factors will determine whether or not employers receive eligibility. As mentioned above, you must have one or both of these factors impacting your business during the quarter you want to apply the credit.
The first eligibility factor is marked by a significant decline in gross receipts. That exact percentage is a 50 percent drop or higher. You must compare a quarter in the current tax year to the same quarter in the previous year.
The second occurs when your business must deal with partial or full suspension of its operations, on account of a government order.
We have a couple questions for you now! Do you meet one or more of these qualifications? Or are you still unsure? Contact Greene & Vaughan, so we can help you determine if your business qualifies for the Employee Retention Credit. Not to mention, we can also help with your financial planning too! Learn all about our services here.