The Employee Retention Credit under the CARES Act encourages businesses to keep employees on their payroll. The updated Employee Retention Credit (ERC) provides a refundable credit of up to $5,000 for each full-time equivalent employee you retained from March 13, 2020, to Dec. 31, 2020, and up to $14,000 for each retained employee from Jan. 1, 2021, to June 30, 2021.
The Employee Retention Credit is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that eligible employers pay their employees.
You qualify as an employer if you were ordered to fully or partially shut down or if your gross receipts fell below 50% for the same quarter in 2019 (for 2020) and below 80% (for 2021).
If you were not in business in 2019, then you could use the corresponding quarters from 2020.
You can claim your credit immediately by reducing payroll taxes sent to the Internal Revenue Service (IRS).
If your credits exceed payroll taxes, then you can request a direct refund from the IRS.
The new law, retroactive to March 27, 2020, now allows employers that received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages not treated as payroll costs in obtaining forgiveness of the PPP loan.
The ERT credit goes through December 31, 2021. A deadline to file for the credit has not been announced yet. Also, if employers did not file for the credit in previous quarters with their Form 941, they can file a Form 941X to claim the credit for the previous quarters. You then can have the credit applied to future quarters (which is faster to receive the credit) or ask for a refund of those quarters (which takes longer to receive).
Determining the amount of the credit is not an easy calculation since it takes the gross receipts per quarter to compare to previous quarters. To throw in more confusion, even if your gross receipts are not less you still may qualify for a reduced credit.
In our role as financial advisors, accountants, and bookkeepers for spas & medical practices, we are currently working with several of our clients to apply for and process this credit. If you would like our help, please let us know so we can get the process going for you. The first consultation is free.
How the Updated Employee Retention Credit Works and How to Get It by Jim Probasco for Investopedia