How Employee Retention Credit Works
Surviving the pandemic requires any small business owner to be fairly knowledgeable about available government tax credits and support. Small businesses that have struggled to keep going through the pandemic may be eligible for employee retention credit (ERC) as a form of tax relief.
Here is what you need to know about ERC.
What is Employee Retention Credit?
The CARES Act includes The Employee Retention Credit which was put in place to persuade businesses to retain employees during the pandemic and moving forward. It specifically caters to businesses that have been financially impacted by the COVID pandemic. Through Employee Retention Credit, employers can receive a refundable tax credit of 50% for up to $10,000 in qualified wages for full-time employees retained in 2020. This retention was specifically for the period between 13th March 2020 – 31st December 2020.
The ERC deadline was expanded for 2021 through the Consolidated Appropriations Act (CAA) in December 2020. This made ERC available for employers who had received a PPP loan and others who met the stipulated qualification criteria.
Furthermore, in 2021, ERC is available for up to $14,000 in qualified wages for employees that were retained between the period of 1st January 2021 and 30th June 2021. This reveals an increase to 70% of qualified wages, and a change in the annual wage limit from $10,000 a year, to $10,000 a quarter.
Employee Retention Credit 2021 Eligibility
The following criteria can help you determine if you are eligible for 2021 employee retention credit.
- If there is a decline of more than 20% in 2021 compared to the same quarter in the previous year, due to the COVID-19 pandemic.
- Your company was partially or fully suspended because of COVID-19 orders (including quarantine periods and forced closures)
- Your company employs fewer than 500 employees.
It is essential to note that in November 2021, the Infrastructure Investment and Jobs Act has been signed. The result is an amendment to the ERC deadline to 20th September 2021 from 31st December 2021. Working closely with a qualified and professional CPA will help you determine your eligibility, and keep you aligned with changes and deadlines.
