Even though it’s 2022, there’s still time to take advantage of the limited-time opportunity, Employee Retention Credit.
The Employee Retention Credit is simple in concept. The refundable tax credit provides organizations impacted by COVID-19 with financial relief. For all of 2020, and three quarters of 2021, employers can earn up to $26,000 in tax credits, per employee.
However, employers can still receive credits for employees kept on payroll during 2020 and for nine months of 2021.
Qualifying for the Employee Retention Credit
Below are the criteria for generally qualifying for the Employee Retention Credit:
For the 2021 Employee Retention Credit, your organization employed, on average, at least 500 full-time employees during 2019
For the 2020 Employee Retention Credit, your organization employed, on average, at least 100 full-time employees during 2019
Your business operations were fully or partially suspended due to a COVID-19 government order
Your business incurred a decline in gross receipts greater than 50% for 2020 and greater than 20% for 2021
The wages you are relying upon for the Employee Retention Credit were not forgiven under a Paycheck Protection Program (PPP) loan
Determining qualified wages
It’s important to note that the rules are different for determining qualified wages for the 2020 and 2021 tax years.
For the 2020 tax year, organizations can claim 50% credit of the first $10,000 in qualified wages paid per employee for the entire year. For the 2021 tax year, organizations can receive 70% credit of the first $10,000 per employee, per quarter.
IRS safe harbor for gross receipts
To further help employers qualify for the refundable credit, the IRS issued guidance that clarifies the terms and conditions pertaining to gross receipts. The material essentially provides employers with safe harbor for excluding certain expenses from gross receipts, including the following:
The amount of the forgiveness of a Paycheck Protection Program (PPP) loan
Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act
Restaurant Revitalization Grants under the American Rescue Plan Act of 2021
Employers do not have to claim the safe harbor for gross receipts but should be consistent in their application of it.
Getting started with the Employee Retention Credit
Best practices for applying for the Employee Retention Credit encourage documentation retention and sound employee classification processes. We recommend utilizing your ACA compliance process to determine full-time employee eligibility.
If you’re not currently leveraging the Employee Retention Credit, it’s not too late to start.
Download our product sheet below to learn more about qualifying and ideal solutions for maximizing the opportunity.
Tax credits are a great way for organizations to increase their bottom-line. If you’re interested in learning about WOTC, the ERC, or a different tax credit, contact us to see how we can help your organization start earning.