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Employee Retention Credits

Employee Retention Credit: A Tax Break for Employers

The Employee Retention Credit (ERC) was rolled out after the passing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. It was a way for the government to encourage businesses to retain their employees on the payroll following the negative impact of the COVID-19 pandemic. The relief was extended from March 2020 to January 31, 2021. Eligible employers can claim certain payroll taxes against wages paid to their employees in the respective periods.

On December 27, 2020, the Consolidated Appropriations (CAA) Act 2021 was enforced under the CARES Act 2020, modifying the contents of the ERC. The new changes enabled employers to continue claiming the tax credits for another six months, running up to June 30, 2021. The program was again extended and will run-up to December 31, 2021, under the American Rescue Plan Act 2021. 

One of the key employee retention benefits is offering an incentive for employers to still pay wages. In 2021, over 30,000 businesses have already claimed more than $1 billion. However, more businesses still need to be educated, given that the program is guided by some laws and regulations which keep being updated, generating several complexities.

What is the Employee Retention Credit?

It is a fully refundable tax credit which an eligible employer can claim a percentage against qualified wages paid to employees. For 2020, employers can claim 50% of all qualified wages up to $10,000 per employee paid between March 13, 2020, and December 31, 2020. So, you can claim up to $5,000 per employee. This also extends to those who initially borrowed the Paycheck Protection Program (PPP) loans.

In 2021, the American Rescue Plan Act increased the claim amount to 70% of all qualified wages paid to each employee from January 1, 2021, to December 31, 2021. The maximum limit per employee is retained up to $10,000 ($7,000 for each employee per quarter) for any quarter.

What are the Qualifications for Claiming the Tax Credit?

The American Rescue Plan Act approves the credit for any employer, college, university, hospital, and tax-exempt organization as defined under 501(c). It also extends to those who borrowed a loan under PPP.

The Internal Revenue Service issues two requirements that make an employer eligible:

  1. Any business or organization that has experienced a partial or full suspension in their operations due to government orders during COVID-19.
  2. A business that has reported a significant decline in gross receipts.

Not all businesses qualify for the first requirement, including those supplying critical goods and the ones that could resume operations through teleworking. Under the requirement for gross receipts, many businesses qualify.

From March 2020, an employer can make a claim provided the gross receipts in a calendar quarter are less than 50% of gross receipts compared to the same calendar quarter in 2019. However, if the business reports an increase in gross receipts of more than 80% of gross receipts in the next quarter for the same calendar quarter of 2019, it no longer qualifies.

For 2021, employers should prove that their operations were limited due to government closures or quarantines, leading to more than a 20% reduction of gross receipts in the quarter compared to the same calendar quarter in 2019.

What are Qualified Wages for Claiming Credit?

These are wages inclusive of those subject to FICA taxes plus specific health expenses. You need to have paid them between March 13, 2020, and December 31, 2021. In addition, the IRS qualifies health expenses to include both the before-tax deductions from both the employer and employee.

The basis for calculating qualified wages is the number of full-time employees you have hired. IRS defines a full-time employee as one who has worked an estimated 30 hours per week or 130 hours of service each month. The number of full-time employees was updated from 100 in 2020 to 500 in 2021 under the CAA.

So, for 2020, if you had hired more than 100 full-time employees in 2019, you can claim a credit against qualified wages paid for services not provided due to government closure or decline of gross receipts. And, if you had 100 or fewer employees in 2019, you can claim on all wages paid to employees, including those hours not worked due to suspension or gross receipt decline.

In 2021, having more than 500 full-time employees 2019 allows you to include only wages paid to employees for non-working hours because of forced closure or reduction in revenue. If you had employed 500 or fewer full-time employees in 2019, you could calculate credit against wages paid to all employees during the COVID-19 period. Generally, the IRS offers detailed guidelines on the components of ERC intending to help employers get informed and organize how to claim the tax credit to reap the benefits.
 
Essentially, small businesses can retain their employees even if they are not working, although larger businesses are exempted. If you are an eligible employer, this is a form of tax benefit which reduces your tax obligations. You can also request advance payments from the IRS if the payroll taxes cannot cover the credit amount. 

Just note that the advances are limited to employers with 500 or fewer employees. Furthermore, you can still claim it regardless of borrowing a PPP loan but not at the same time. Employees are also able to sustain their living as they get to keep their jobs.

Taking Action

This is still a challenging time for any business, whether big or small, and the credit program acts as a great relief against the pandemic. It is an opportunity that the government wants you to optimize as it offers a significant tax break to run your business and meet your set goals. As technology solution experts, let us help you manage through the technicalities of eligibility and wage rules. Please contact us, so we can offer you the support you need.

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What Are Point of Hire Tax Credits?

Tax credits are dispensed when a business does something valuable within the community. Giving to charity and providing child care, for example, earn tax credits. So too, can hiring. This is called the Point-of-Hire (POH) tax credit. Is your business claiming your full savings?

A business’ role as an employer is among its most important functions to the nation. Certainly, manufacturing shoes or selling groceries is important, but employing the populace is essential to the flow of industry. Each person on your team is one more person who is employed vs. unemployed. One more person receiving a reliable income and contributing their skills to the greater economy. Each time your company hires a new employee, you benefit the economy through that employment.

Employment is the path out of many situations of economic disadvantage and dependency. This is especially true in vulnerable and struggling population groups. From elevating youth into a career to employing veterans and the disabled, both federal and state governments offer business tax credits based on the opportunities offered to target-group employees. Accessing these credits requires each company to choose a Point of Hire tax credit solution to screen, verify, apply, and claim the credit each year.

What is the Point of Hire Tax Credit?

The Point of Hire tax credit is a type of tax credit given to businesses for hiring employees in disadvantaged situations. Targeted groups include veterans, SNAP and SSI recipients, and youth from Empowerment Zones, among others who benefit acutely from access to employment and career opportunities. POH tax credits are usually offered at the state level. Point of Hire tax credit is based on and paired with the WOTC (Work Opportunity Tax Credit) provided by the federal government.

The POH tax credit is available to all businesses, rewarding opportunities provided during standard hiring procedures. The credit was designed to promote diverse hiring and encourage businesses to hire from disadvantaged populations who have the most to gain from employment opportunities.

How to Get Your Company’s POH Tax Credits

The first step of claiming your POH tax credits is pre-screening for qualification. Your business must qualify, and credits only apply to new hires within specific target groups. It’s important to carefully screen your POH applications to ensure that each claim is qualified for the tax credit and how much. You must file your pre-screening application within 28 days.

POH and WOTC Target Groups

Which newly hired employees qualify your company for Point of Hire tax credits? The target groups are usually identified by their access to financial services due to poverty-line existence. This may be from a medical condition, legal status, or disadvantageous financial circumstances. The POH and WOTC programs are designed to promote these disadvantaged groups by providing a tax credit to companies that help employ these groups and improve their prospects through career advancement.

  • IV-A & TANF Recipients
    • Temporary assistance for needy families
  • Qualified Veterans
  • Ex-Felons
  • Vocational Rehabilitation Referrals
    • A person with physical or mental disabilities is referred to the employer while in a rehabilitative service plan.
  • Summer Youth Employees
    • 16-18-year-old youths from Empowerment Zones, enterprise communities, and renewal communities
    • Employed between May 1 and Sept 15
  • SSI Recipients
  • Long Term Family Assistance Recipient
  • Qualified Long-Term Unemployment Recipient
    • Unemployed for longer than 27 weeks

POH vs. WOTC: What’s the Difference?

  • WOTC:
    • Work Opportunity Tax Credit is a Federal Program
  • POH: 
    • Point of Hire tax credits are a type of tax credit offered by federal and state governments.

One of the biggest questions in Point of Hire programs is the relation to WOTC. When you look up either acronym, the other appears. They seem to be synonymous. Is Point of Hire the same as Work Opportunity Tax Credits? The answer is yes, and no.

WOTC is a point-of-hire program provided by the federal government to all eligible companies who employ certain financially at-risk groups. It is also an inspiring policy that many states took up individually. State programs that piggyback this and offer additional incentives are usually referred to simply as Point of Hire instead of using the federal Work Opportunity designator.

WOTC is the federal policy inspiration for most POH state programs. However, linguistically Point of Hire is the category, and WOTC is a point of hire style tax credit.

What is Required for POH Tax Credits

To claim your Point of Hire tax credit, you’ll first need a certificate of eligibility. To get this, you send a Form 8850 pre-screening application. If you get a certificate back, you can claim the credit with a Form 5884 or 3800. The most time-consuming part of the process is pre-screening to ensure that your circumstances qualify by the POH tax credit. The IRS also recommends that qualified tax-exempt employers not change their calculations in the assumption that the credit will be approved.

Pre-Screen to Determine Your POH Eligibility

The first and very important step is to confirm that your recent hire meets eligibility requirements. A close investigation may be necessary to determine all related factors and qualifiers. This includes very data-sensitive details about each new hire’s financial and personal status, information that must be respected and closely guarded while you have it, and may not be legal to discuss during job interviews for reasons outlined by the EEOC.

Fill and Submit Form 8850 to Request an Eligibility Certificate

Once you have determined internally that a hire is POH eligible, complete and file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit within 28 days of the first day of work, you will need to identify and outline each of the qualifying factors to expect a certificate of POH tax credit approval.

Claim the POH Tax Credit with Form 588-C

After receiving a certificate,  file a tax-exemption claim against the employer’s Social Security tax with a Form 5884-C or possibly a 3800 based on your circumstances.

Quentelle’s Point of Hire Tax Credit Solutions

Is your business missing out on potential POH tax credit exemptions? Capable employees are often included in target groups in the process of overcoming any disadvantages without mentioning the process to coworkers. However, certain fact-checking can provide you with greater resources to benefit more new hires and better career development programs for tax purposes.

The Quentelle team is here to help you through every step of the POH tax exemption process. Our POH tax exemption solutions include pre-screening, form submission, certificate acquisition precise tax exemption claim filing. To schedule a demo or a consultation with our business tax credit experts, contact Quentelle today.

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Business Man Looking at Employee Details

The Ultimate Employment Retention Credit (ERC) Guide

The Employment Retention Credit, widely referred to as the ERC, is a refundable tax credit program provided to small businesses by the government. The program is meant to help small enterprises subsidize the costs eligible employers pay their employees to aid employee retention.

Employers can now recover up to 70% of qualified wages through the program, including health benefit expenses paid to employees since the pandemic hit. However, the ERC program is complex, and the conditions have changed so much since its implementation, adding to the confusion.

Below, we break down everything you need to know about the Employee Retention Credit (ERC) program. We will take you through its importance, eligibility requirements, and how to mitigate the financial risks of keeping your workforce employed.

The Evolution of the Employment Retention Credit

The government enacted the ERC at the beginning of the pandemic to help more employers retain their employers as the economy was shaken. Since its enactment, three laws have brought about changes and expansion of the program. 

1. Coronavirus Aid, Relief, and Economic Security (CARES) Act 

On March 13, 2020, the CARES act was enacted for qualifying employers with 1-100 W2 qualifying employees. Employers could claim the credit against 50% of qualified employee wages paid between March 13, 2020, and December 31, 2020. The credit was allowable for wages amounting to $10,000 per employee annually.

2. Consolidated Actions Act (CAA)

The CAA established in December 2020 brought enhancements to the ERC. The most notable changes include an extension of the coverage period to cover the first two-quarters of 2021 instead of ending in December 2020. In addition, employers with 1-500 employees now qualify and can claim credit tax on 70% of qualifying wages up to $10,000 per applicable quarter.

3. American Rescue Plan Act (ARPA)

According to the ARPA, employers can claim up to 70% of qualifying employee wages or a maximum of $7,000 per employee for every quarter. This is applicable for two more calendar quarters between June 30 and December 31, 2021.

Who is Eligible For ERC?

An employer qualifies for employee retention benefits if they satisfy two primary requirements:

  1. They are faced with a significant decline in their gross receipts. To qualify in the tax year 2020, you must have experienced at least a 50% reduction in gross receipts compared to a corresponding calendar quarter in 2019. This changed with the CAA and ARPA seeing that now you qualify if you see 20% gross receipts compared to an identical calendar quarter in 2019 or the quarter you started the business.
  2. They are affected by a full or partial suspension of business operations due to government COVID-19 orders. You only qualify for the portion of the quarter when your business operations are disrupted and not the whole quarter.

Applicants who already received loans under the Paycheck Protection Program (PPP) still qualify for the tax benefits from employee retention. However, this is limited to wages that are not forgiven under the PPP. 

Fortunately, employers with PPP loans can maximize their ERC benefits by including all their eligible non-payroll expenses, such as operational expenses, rent, and utilities, in their PPP forgiveness report. Additionally, employers cannot use the same wage period to apply for both benefits.

The eligibility is also based on the number of company employees, which now ranges between one and 500 employees, excluding the employer.  

  • Employers with 500 or fewer employees can apply for ERC on all qualified wages paid to all full-time employees whether the employees were working or not during the particular quarter. 
  • Employers with more than 500 full-time employees ERC can only be levied on the wages paid to employees who were not working during a specific quarter due to a company suspending its operations or a significant gross receipts decline.

What Are the Qualified Wages?

According to the ERC, qualified wages are any compensation to part or all full-time employees for a specific quarter. These include qualified health plan expenses incurred by an employer. These wages must be subject to FICA taxes and paid after March 12, 2020.

Who Is a Full-Time Employee?

According to the ERC program, a full-time employee works at least 30 hours per week or 130 hours a month during any calendar month of 2019. The full-time employee equivalent for the ERC varies from the PPC forgiveness report.

How To Apply For ERC Credits

The ERC is fully refundable and applied after the deduction of employer Social Security taxes. Furthermore, you receive any amount of excess credit of your total liability for your Social Security taxes.

The IRS issued a Notice-2021-21 to provide employers with necessary guidelines on how to claim ERC credits. According to the notice, if you are eligible, you need to calculate your qualified wages, including your Social Security and Medicare taxes, and account for this credit on IRS File 941 Employer’s Quarterly Federal Tax Return.

You should also include any qualified family leave and sick leave wages approved under the FFCRA. Employers who have already filed their year 2020 taxes can utilize the File 941-X Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund to retrospectively claim their credits for the past qualifiable quarters when wages were paid. This, however, only applies to wages paid before December 2020.

Quentelle Can Help You Maximize Your ERC

If you are looking for help with the calculation of your ERC credits, look no further. Quentelle is here to provide you with tech-driven solutions for employment verification and point-of-hire credits. We use an advanced platform and employ the best practices to provide you with streamlined income and employment verification requests.

VeriSafeJobs is our world-class platform that not only gets the job done but also keeps your private data safe and secure all the time. With us, you do not have to worry about all the complexities of the ERC, as we will handle it all for you. 

If you’d like to find out more about how we can help you simplify your ERC eligibility or claim process, schedule a demo today to see everything our superior solution can do for you. 

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