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Do You Qualify for the Employee Retention Credit?

Updated: Jul 2

How can this credit help your business?





Many business owners continue to face challenging decisions as COVID-19 continues to rampage across the world. The decision of furloughing employees is never taken lightly, and the Employee Retention Credit was created to give employers an alternative path. Even as many businesses begin to reopen, that doesn’t necessarily mean your business is open! The Employee Retention Credit can give you immediate access or advance payment from the IRS. It exists to help your business stay afloat to financially recover post-COVID. Read on to find out more!


How it Works



This refundable tax credit is 50% of up to $10,000 of wages that were paid between March 13 and December 31, 2020. If you’d like to request advanced credit, submit IRS Form 7200. If you need help, make an appointment with Practical Accounting Solutions today!


With the Employee Retention credit, you reduce the payroll tax you would send. If your credits exceed your payroll tax, you could instead request a direct refund. This covers up to $5,000 per full-time employee.


Who’s Included


The Employee Retention Credit includes business that operated in the 2020 calendar year and had either:


  1. Full or partial suspension of operation due to government orders that limited commerce, travel, or meetings

  2. If you experienced a significant decline in your gross receipts.






This credit is tax-exempt, too!


Let’s dive a bit deeper into #2, experiencing a significant decline in your gross receipts. The beginning of this decline begins when your decline is greater than 50% compared to the same calendar quarter of 2019, and the decline ends on the first day of the first calendar quarter following the calendar quarter where your gross receipt is 80% of the gross receipts in the same quarter of 2019.


Investopedia made this practical chart to help you figure out when your decline begins and ends:







This credit also has a few different caveats of the types of wages it applies to. You can apply this credit to qualified wages and certain health expenses. If you have fewer than 100 employees, all of your employees are eligible. If you have greater than 100 employees, it only applies to employees who are still being paid but not actively providing services. In addition, it only applies to full-time workers. You also cannot combine this credit with others - so if you received a PPP loan, you’re not eligible for the Employee Retention Credit.



How to Apply


To claim the Employee Retention Credit, your employees will report their total qualified

wages and health insurance costs for each quarter on their quarterly tax returns (Form 491). Employers can also retain employment taxes that would have been deposited such as:

  • Federal income tax withholding

  • Employee’s Share of Social Security Tax

  • Employee’s Share of Medicare Tax

  • Employer’s share of Social Security for all Employees

  • Employer’s Share of Medicare Taxes for all Employes


Note: The Families First Coronavirus Response Act can affect this because it takes into account any reduction for deposits anticipating sick/family leave credit.



Conclusion


This credit can help your business stay afloat in the times of Coronavirus. Let Practical Accounting Solutions know how we can help, too!


We’d like to close this out with an infographic from the IRS that nicely outlines the process of claiming the Employee Retention Credit:










Resources:

Publication 5419 (5-2020)

Employee Retention Credit

What is the Employee Retention Credit and How to Get It

Form 7200 (March 2020)

Form 941 (Rev. January 2017)

Practical Accounting Solutions











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Disclaimer: The views presented in this post are meant as educational resources and should not be taken as direct advice for your personal finances or small business. Should you have questions regarding a post relating to your specific finances, please contact us at info@practicalaccountingva.com.


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