With the world as we know it changing every day, we have been trying to stay on top of what's happening to help our clients and ourselves. We want to use this changing knowledge to protect our finances, our employees, to know if are eligible for assistance, and how to help our clients navigate through these strange times. Today we are going to be talking about Employee Retention Credit.
Hello, Summerville! We are so excited to see our beautiful town get back to some sense of normal. Everything about our daily and professional lives continues to change, but we are relieved to see that individuals and businesses continue to move forward. One of our main focuses these past two months has been how the current pandemic is affecting our finances. There has been a lot of help thanks to tax day being pushed back, the stimulus relief fund, and the CARES act. Each has seen its ups and downs for individuals and small businesses, bringing a mixture of relief and frustration.
Most of the financial help that we hear about day to day is that for personal finances, but businesses of all sizes have needed just as much help through these difficult times. Many have been required to operate at 50% capacity due to safety protocol during the pandemic while others have been completely shut down after they were deemed nonessential. With the signing of the stimulus relief package and the CARES act, businesses of all sizes were put into consideration. Small business loans and other forms of relief were immediately put into action, although their first big wave was not received well nor handled well.
Just like you as an individual, businesses have been on top of filing and working towards a way to help their companies survive so their employees have a place to come back to when this is all over. Most employers who were able to apply for any kind of assistance did so in March, but there are still opportunities and things to apply for if your company hasn't already. In this blog, we are going to be talking about one of these forms of assistance that is still available to businesses, and that is employee retention credit.
WHAT IS IT?
You may or may not be familiar with this term or what kind of help it provides. This is a business relief provision that encourages employers to keep employees on the payroll, even if they're not working. It helps provide relief to unemployment offices to limit the number of people applying for unemployment. It was also created to help guarantee that employers will have returning employees once they can open up again. Thanks to the creation of the employee retention credit, the government will reward your company for keeping your employees on your payroll and for deciding to choose this assistance. It is refundable tax credit taken against certain employment taxes that can equal up to fifty percent of an employee's wages that you, as an employer, are still providing. The tax credit is fifty percent of up to $10,000 in wages per employee that has continued to be paid by the employer. This means that your company can be awarded a $5000 tax credit per qualifying employee. This was created as a business relief provision. The money your company will be receiving is a refundable payroll tax credit for qualified wages that will be paid or have been paid to your employees between March 13th of this year until December 31st of 2020.
You and your company are eligible if you have been directly affected by COVID-19. If you have been forced to work at half capacity due to safety precautions, or you have been forced to shut down entirely because you are a nonessential business, you are eligible. No matter the size of your company, you are still eligible. Your company is eligible for this tax credit if your gross receipts for this current quarter are less than what they were in the same quarter this time last year. You are NOT eligible for this tax credit if you are a governmental employer, or if you are self-employed or a small business that has taken small business loans or other small business loans created to help with issues caused by the pandemic.
WHAT TO KNOW
Once you have decided to pick this type of relief, you can begin claiming it right away by reducing your payroll taxes sent to the IRS. If it ends up that your tax credits exceed your payroll taxes, you can ask for a refund directly from the IRS. If your company has over 100 employees, the only wages that can be obtained are of those who were full time and are not working right now. If you have under 100 employees, you can claim all of your employee's wages regardless if they are working or not. Wages up to $10,000 can be claimed, and this does include how much your company pays towards health insurance for each employee. Since you can claim 50% of this $10,000, the max credit you can receive is $5,000 per employee. The tax credit will be repaid to you after subtracting your share of your employee's social security taxes, and it will be treated like you overpaid your taxes, and it will be returned to you.
In comparison, the Paycheck Protection Program (PPP) was also created to offer similar benefits to businesses. You can't apply for both or receive benefits from both, you have to pick one or the other. When deciding which is best for you and your employees, always pick the aid that will help you and your employees the most, not one or the other. Since the applications for the PPP were suspended on April 17th of this year, this will now dictate your choice of what is available to you and your company. As the country slowly begins to reopen, pay close attention to how this will affect your business. You may be able to go back to work at full capacity, and you may not. There could potentially be more aid coming, we will just have to wait and see what the coming weeks will bring. If you and your company have been unable to receive any kind of benefits, keep your eyes open for this opportunity.
These have been difficult and confusing times. You aren't wrong in feeling overwhelmed and confused. We where are here to support you, Summerville. You are not alone in your fight. Also don't forget, if you're looking for the best tax accountant in Summerville, the best tax services in Summerville, the best Quickbooks services in Summerville, the best IT services in Summerville, and the best payroll services in Summerville, we are still here for you. Tax season may be over for some and just starting for others, and we will be here for you no matter what!
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The Pathways Team