Employee Retention Tax Credit

Home » Services » Income Tax Services » Employee Retention Tax Credit

Employee Retention Tax Credit Program

The employee retention tax credit is a tax incentive program offered by the government to encourage employers to retain their employees during tough economic times. The credit is aimed at reducing the financial burden on businesses and making it easier for them to keep their staff employed instead of laying them off. This credit is particularly beneficial for small businesses that have been impacted by the COVID-19 pandemic and are struggling to stay afloat. By taking advantage of this tax credit, businesses can save money on their taxes and ensure that their employees continue to receive a steady income. Employers in Florida should consult with a tax professional to determine their eligibility for the ERTC and how to claim it.

The Employee Retention Tax Credit (ERTC) is a provision that was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Its purpose is to assist businesses in retaining employees on their payrolls while the economy is in flux due to the COVID-19 epidemic. 

To be more explicit, the ERTC is a credit that can be completely refunded and is equivalent to fifty percent of an employee’s qualified wages, up to a maximum of ten thousand dollars in compensation.

What is Employee Retention Tax Credit?

The Employee Retention Credit is a wholly refundable tax credit for employers equivalent to 50% of eligible salaries (plus allocable recognized health plan expenditures) paid to Eligible Employers. This Employee Retention Credit applies to eligible salaries earned on or after March 12, 2020, but before January 1, 2021. For all fiscal quarters, the highest limit of qualifying earnings for each employee is $10,000, so the maximum credit for an Eligible Employer for appropriate wages paid to any employee is $5,000.

Who Qualifies for Employee Retention Tax Credit?

The ERTC is only accessible to certain qualifying employers whose businesses have been impacted by the coronavirus pandemic. This contrasts with other elements of the CARES Act that have a wider scope of applicability and are listed in the act. These include most enterprises, except for self-employed individuals and government employers.

As an employer, you can become ERTC-eligible in one of two ways. If you want to avoid paying taxes, you can either:

  • The government may order a full or partial shutdown of activities at any time in 2020 owing to the coronavirus.
  • Prove that your quarterly gross receipts dropped significantly in 2020. The quarterly gross receipts must be less than 50% of the quarterly gross receipts in 2019 for that quarter to meet this criterion.

What Can You Claim Through Employee Retention Tax Credit?

The Employee Retention Tax Credit can be used for each employee’s earnings up to $10,000. The credit applies to salaries earned between March 12, 2020, and January 1, 2021. Since it only covers 50% of pay per employee, this provides companies with a maximum credit of $5,000 per retained worker.

This tax credit cannot be combined with any others. For instance, the Families First Coronavirus Relief Act (FFCRA) mandates that businesses offer COVID-19-affected employees paid sick and family leave. Wages cannot be considered for both, as the FFCRA contains a similar tax credit. This could limit the amount of ERTC funding an employer can obtain.

Employers are not compelled to utilize the Employee Retention Tax Credit, and some could choose to lay off or suspend workers rather than pay qualifying wages and claim the ERTC.

How Should You Claim Employee Retention Tax Credit?

Employers qualifying for the ERTC must submit quarterly reports detailing their qualified salaries and any credits earned. Form 941 is the standard federal form for employers filing these quarterly tax returns. With this form, companies will disclose their financial gains along with the amount of Medicare and Social Security taxes deducted from employee paychecks. 

In addition, the employer’s share of Social Security and Medicare taxes must be recorded.

Employers who qualify for the credit can put the money saved toward their employees’ tax-free earnings. Additionally, businesses can apply for an IRS advance.

Areas Served

Frequently Asked Questions

Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors
SMAART Company® uses cookies to provide you with the best browsing experience. By continuing we assume that you are consenting to all of our websites' cookies. Learn More