As a business owner, you want to ensure that you are taking advantage of every tax credit you are eligible to receive. While reviewing available tax credits and incentives, you may come across the COVID-19 Employee Retention Credit. This is a refundable tax credit that a business can claim on qualified wages to employees and certain health insurance costs. There have been several enhancements and changes to the program recently, so it’s important to stay informed of where the program stands today.
The ERC was first established under the CARES Act of 2020 in response to the effects the Coronavirus was having on struggling businesses and employment. This was an initiative passed by Congress to help businesses retain their employees and avoid layoffs. The credit originally could not be claimed by employers who also received a Paycheck Protection Program (PPP) loan). However, that subsequently changed, and those businesses are now eligible. With the ERC, employers could claim a tax credit of up to $5,000 for each employee that was paid between March 13,2020 and December 31, 2020.
Under the Consolidated Appropriations Act of 2021, employers could claim ERC for eligible employees quarterly instead of annually. The ERC maximum amount increased to $28,000 per employee that was paid in 2021. The American Rescue Act of 2021 had similar parameters as the Consolidated Appropriations Act of 2021 or CARES Act of 2021 with the caveat that businesses started after February 12, 2020 may not qualify.
Who is Eligible for Employee Retention Credit?
Under the American Rescue Plan Act, most employers, hospitals, universities, 501(c) organizations, and colleges could qualify for the credit. Your eligibility will be determined by the IRS during tax preparation. There are various factors that can go into eligibility.
Wages are those of full-time employees that were under your employment during a certain time frame. If you have, for example, over 100 full-time employees, you can claim this credit for the ones you retained and are not working. The current threshold is set at 500 full-time employees.
Claiming the Credit
To claim the credit retroactively, you must file Form 941-X, the adjusted employer’s quarterly federal tax return or claim for refund. There are other guidelines for previous years, but currently, we are awaiting the 2021 guidelines. Of course, you should always consult with your accountant or tax preparer to determine the best way to claim the credit. Be advised that you will need to report your total qualified wages as well as related health-insurance costs. The credit can be taken against an employer’s share of social security tax, but it is typically refundable under normal procedures. You may also be able to request an advance or credit by submitting Form 7200.
Qualified Health Plan Expenses
Qualified health plan expenses are incurred by an eligible employer, who then allocates these funds to an employee’s qualified wages. They are used to maintain a group health plan and cannot exceed the employees’ gross income.
Call Quentelle with Your Questions Today
Quentelle’s HR bundle of services includes Tax Credits, Verification of Employment, and Unemployment Insurance cost control. To learn more about how you can maximize your company’s COVID-19 Employee Retention Credit, contact Quentelle online or call us at 888-565-5515 to speak with an expert.