In the past few years, there has been a dramatic increase in the number of businesses that have started up in the recovery industry. This is due to a number of factors, including the increasing demand for these services and the availability of government incentives for startup businesses.
If you are thinking about starting your own recovery-focused business, there are a few things you should know about Employee Retention Credit.
In this article, we will discuss what this credit is, how it works, and who is eligible for it. We will also provide some tips on how to start your own recovery-focused business.
What Is Employee Retention Credit?
The Employee Retention Credit is a refundable tax credit for eligible employers that retain their employees during the COVID-19 pandemic. The credit is available to employers whose operations have been fully or partially suspended as a result of a government order related to COVID-19 or who have experienced a significant decline in gross receipts. Eligible employers can claim the credit against their payroll tax liabilities.
How To Become Eligible For The Employee Retention Credit
There are nine steps to becoming eligible for the employee retention credit. They are:
Step One: Make Sure You Are Eligible
As a general rule, businesses with fewer than 100 employees and less than $25 million in gross annual receipts are eligible for the credit. However, there are other factors that may make a business ineligible, so it’s important to check with the IRS to make sure you qualify.
Step Two: Figure Out Your Base Period Average Payroll
Your base period payroll is the average amount you paid your employees during the four quarters of 2019. To calculate your base period payroll, add up the total wages you paid to all employees during each of the four quarters and divide by four.
Step Three: Calculate Your Credit Amount
The credit amount is based on the percentage of your base period payroll that you retain employees for in 2020. The maximum credit is 50 percent, but the minimum is 20 percent. So, if you retain at least 80 percent of your 2019 payroll, you can claim a 20 percent credit. If you retain all of your employees, you can claim a 50 percent credit.
Step Four: Determine How Many Employees You Have
To calculate the number of employees you have, counting full-time and part-time workers, use either the average number of employees during 2019 or the average number of employees during 2020 (January through March), whichever is less.
Step Five: Determine Your Eligibility Period
You can claim the credit for any quarter in 2020 as long as your business was operational during that quarter and you experienced a decline in gross receipts of at least 50 percent when compared to the same quarter in 2019.
Step Six: Calculate Your Gross Receipts
To calculate your gross receipts, add up all the revenue your business earned from all sources during the quarter. This includes sales, commissions, fees, and any other income.
Step Seven: Calculate Your Decline in Gross Receipts
To calculate your decline in gross receipts, compare your gross receipts for the current quarter to your gross receipts for the same quarter in 2019.
Step Eight: Complete The IRS Form 941.
The IRS Form 941-X is used to calculate your credit amount. You can find this form on the IRS website. Click here to see the form directly.
Step Nine: Claim The Credit On Your Tax Return
Once you have completed all of the steps, claim the credit on your tax return. Claim it here.
Pros & Cons
When it comes to employee credit retention, there are both advantages and disadvantages to consider.
On the one hand, retaining good employees can be crucial to the success of a business. Employee retention can help reduce staff turnover rates and promote a positive work environment. Additionally, businesses may be able to retain important knowledge, skills, and experience by keeping their employees.
Also, employee retention can be expensive and time-consuming. It can also be difficult to find a good fit for a position if there are a lot of turnovers. Businesses may lose out on new ideas and perspectives if employees leave prematurely.
It is up to business owners to decide whether or not the advantages of employee retention outweigh the disadvantages. They should carefully consider their specific needs and goals before making a decision.
Pros:
- Reduce recruitment costs.
- It breeds a sense of loyalty among employees.
- Can foster a stagnant culture if new blood isn’t brought in.
- This may discourage employees from seeking new opportunities.
Cons:
- Employees may become too reliant on credit and lose motivation if it is discontinued.
- Difficulties in tracking the impact of the credit on employee retention.
- Can backfire if used as a retention tool without also investing in employee development.
- May create tension between long-time employees and newer hires.
FAQs
Q: How do I know if I’m eligible for the credit?
A: To be eligible, you must have experienced economic hardship as a result of the COVID-19 pandemic. You must also have been unable to operate at least 50% of your normal capacity during any quarter in 2020.
Q: How much is the credit worth?
A: The credit is equal to 25% of your wages paid during the quarter in which you experience hardship.
Q: How do I claim the credit?
A: To claim the credit, you will need to file Form 8974 with your tax return.
Q: When can I claim the credit?
A: The credit can be claimed for wages paid in 2020.
Contact Us for ERTC Help
Employee Retention Credit is a vital part of any organization’s success. By ensuring that your employees are happy and feel appreciated, you can avoid costly turnover rates and keep your business running smoothly.
Are you looking to learn more about the employee retention credit or other tax credits available to businesses? Contact our office today. Our team of experts would be happy to help you take advantage of every opportunity available to help your business succeed!
