At times business operations are usually affected negatively, leaving the employees in a financial depression. Credit packages usually come in handy at such moments. Employers should have a way to maintain their employees on the payroll despite any prevailing circumstances.
Employee retention tax credit was launched in March 2020 as a relief measure to ensure businesses remain in operation in times of crisis. Over one billion dollars will have been claimed through the employee retention credit by the end of 2020. This article highlights the important factors about ERC.
How it works
The employee retention credit system enables business owners and employers to acquire up to 10,000 credit per employee. An employer will be granted this credit facility depending on their employees’ qualifying wage.
What are qualified wages?
These are any wages an employer pays to an employee for rendering a service. Qualified wages are also categorized as any insurance benefits that are incurred by the employer on behalf of the employee. These wages exempt any expenses incurred for any insurances under an agreement of salary reduction.
Are tips categorized as qualified wages?
If an employee receives cash tips amounting to more than $20, they can be classified as qualified wages.
Employers whose businesses have partially or fully subsided due to the global pandemic are qualified for the ERC. An employer can also qualify for the credit if his/her business has experienced a 90% revenue decline compared to the previous quarter.
Are Self-employed individuals eligible for ERC?
A self-employed individual can’t be eligible for ERC with respect to their employment earnings. On the other hand, a self-employed individual can qualify for ERC if he/she has employed other people. However, the self-employed individual should meet all the requirements to qualify for ERC.
How to claim for ERC
An employer can claim the ERC depending on their tax returns from the federal government. Employers mainly amend their tax form 941 to be eligible for their credit. An employer can also claim for ERC by using the annual tax return form 944, depending on the nature of the business. Employers who are into the agricultural business can also be eligible for ERC by filling form 943.
Can the local government or federal state entities be eligible for ERC?
Unfortunately, any entities associated with federal or local governments aren’t eligible for the employee retention credit. Tribal entities and tribal governments may be considered eligible for this credit fund.
Can Tax-exempt employers qualify for ERC?
Yes, tax-exempt employers can only qualify for employee retention tax credit if they meet the minimum qualified wages threshold.
Can household employers be eligible for ERC?
Household employers aren’t considered to operate a legitimate business or trade; thus, they don’t qualify for the ERC.
The employee retention credit can come in handy for employers who wish to keep their employees in the payroll system. An employer should, however, meet all the qualifications set by the ERC to be considered.