The Employer Retention Credit (ERC) is a refundable credit that employers can apply for in certain payroll taxes. It was created by the government to help businesses keep their employees close during the pandemic. This article will provide an overview of the ERC, including who qualifies, how to calculate it, and how to apply for it. To qualify for the ERC, a company or non-profit organization must have experienced either a partial or total suspension of normal operations due to a government mandate, or a decline in gross revenues during the pandemic. Large employers can only claim the credit for employee salaries and health insurance premiums paid when employees weren't working due to a pandemic-related shutdown.
Small employers, on the other hand, can claim a salary regardless of whether the employees are working or not. To calculate the ERC, first determine the number of eligible employees and the total amount of qualified wages paid to those employees during the corresponding quarter. Then, multiply that number by 50% to calculate the employee retention credit. Companies that have received a Paycheck Protection Program (PPP) loan can still apply for the ERC. The ERC can be applied for by retroactively filing IRS Form 941-X, also known as an Employer's Adjusted Quarterly Federal Tax Return. Companies should be aware of the upcoming statute of limitations so as not to miss out on these refunds.
There are also services available that can help companies assess their eligibility, complete a thorough analysis of their applications, provide guidance on the application process and documentation, and execute a quick and simple process from start to finish. The ERC is an invaluable lifesaver for many small businesses that struggled during the pandemic. It encourages companies to keep employees on their payroll and helps them stay afloat during difficult times. Companies should consult a qualified tax professional if they have any questions about how to calculate their employee retention credit.