What if not understanding the fine print wound up costing your company thousands of dollars?
Considering that the COVID-19 pandemic started, many organizations have taken advantage of the Employee Retention Credit. Nevertheless, lots of aspects of the ERC are extremely confusing, including how the federal government defines terms such as “qualified wages.”
In order to benefit from the ERC, it is necessary to understand how whatever works. Keep reading to find answers to the concerns that will assist you master the ERC once and for all.
What Is the Employee Retention Credit?
We are going to respond to all of your burning questions about things like qualified earnings. Before we go any further, though, it is very important to specify what the Employee Retention Credit is.
Put simply, the ERC is an unique refundable credit that businesses can make the most of. This credit can be declared on certified incomes, which include particular medical insurance costs that your organization pays out to its workers.
The ERC program successfully ended with the signing of the Infrastructure Investment and Jobs Act. Thanks to this act, the ERC program retroactively ended on September 30, 2021.
Services can retroactively make the most of the ERC. In truth, your own organization has three years from the end of the program to get credit for qualifying incomes that were paid to employees after March 12, 2020.
How To Qualify As An Eligible Employer
When organizations first find the ERC, it often appears too good to be real. “What,” they ask, “is the catch?” In this case, the only catch is that you should certify as a qualified employer in the eyes of the federal government.
Generally, there are 2 possible factors that figure out whether your service gets approved for the credit. And one of these factors is especially time-sensitive.
First, your service should have experienced a partial or full suspension of operations due to federal government orders.
As you might imagine, you can just get the credit for the time your business experienced this suspension.
Now, there are some exceptions to this. For instance, necessary companies were not permitted to suspend services and are therefore not eligible for the ERC based on the above aspect. Likewise, services that had the ability to continue remotely even if the physical location was momentarily closed may not be eligible for the credit based on this factor.
As you can inform, the very first aspect is a bit limiting. But there is a 2nd aspect that potentially consists of all types of organizations. The factor in question is that your company must have the ability to reveal a significant decline in your overall gross receipts.
Essentially, this extends the credit to any organization that was substantially affected throughout the COVID-19 pandemic. Which may be good news to any company that has been suffering for the previous couple of years.
The ERC and PPP
Obviously, the ERC is not the only government program meant to assist organizations that were impacted by COVID-19. The most famous of these programs was the Paycheck Protection Program (PPP). This program supplied federal government loans to help struggling services, and specific services were able to receive PPP loan forgiveness.
However, that brings up a crucial concern. If your service previously got PPP funds, then how does that effect your ability to make the most of the ERC?
When the ERC first appeared, organizations that received PPP loans could not receive this tax credit. Later on, though, businesses that received PPP had the ability to claim ERC.
How do the two interact? If you received PPP and had a few of that loan quantity forgiven, the IRS permits you to exclude the quantity that was forgiven from the gross receipts you are reporting. Typically, though, a bulk of your gross invoices will be the certified salaries that you paid out to your workers.
Qualified Wages and the ERC
This brings us to the big concern: what are qualified earnings, exactly?
Worker salaries are generally really straightforward. These are wages that you pay to your employees. Depending on how your organization is established, things like health care expenses might be included in these wages.
However, the ERC specifies these salaries in a different way due to the fact that the tax credit is developed to help you with incomes that you paid to staff members who couldn’t work. Specifically, you can get credit for the earnings that you paid to employees who could not work due to either government orders or a considerable decline in your company’s gross invoices.
ERC Qualified Wages: Changes From Year To Year
Another thing that makes the employee retention credit complex is that the rules are different from year to year.
For instance, for 2019 and 2020, if your service employed an average of more than 100 people, then you can just declare qualifying wages for workers that you retained however who were unable to work. And in 2021, if your service utilized approximately 500 or more workers, you can just declare certifying earnings for staff members that you kept but who were not able to work.
What if you run a much smaller service, then? For 2019 and 2020, if your company utilized approximately fewer than 100 workers, you can claim the credit on all of them whether they were working or not. And for 2021, you can do the very same thing if your business utilized approximately less than 500 employees.
Get Your Credit Today
As you can inform, the employee retention credit can be more than a bit confusing. And things can get back at more confusing once you start submitting all of the documents. However what if you had a specialist who could guide you through the entire process?
We focus on helping services similar to your own make the most of this tax credit. To see what we can do for you and your company, all you need to do is click the Get Started button and answer a few questions.