Does my business qualify for the Employee Retention Credit and how much credit can I get from the IRS?
The Employee Retention Credit (ERC) was created as an incentive to encourage businesses to keep their employees employed even when the business fell below normal operational hours and transitioned into partial shutdown. Due to the implementation of the Consolidated Appropriations Act (CAA) of 2021, the ERC section of the Coronavirus Aid, Relief, and Economic Security (CARES) Act was expanded and extended.
The Employee Retention Credit (ERC) has now become eligible for many private-sector employers and tax-exempt organizations. Essentially this translates to a fully refundable tax credit against Federal taxes for qualified wages paid by employers to full-time employees throughout the coronavirus pandemic.
How much is the IRS offering businesses?
The most current version of the The Employee Retention Credit (ERC) provides a refundable tax credit of up to $5,000 for each full-time employee retained between October 1, 2020 and December 31, 2020 and up to $28,000 for each employee retained between January 1, 2021 and December 31, 2021. A company that employs ten people full-time could be eligible for up to $330,000, while a 100-person business of full-time employees could accumulate $3,300,000.
What taxes will the Employee Retention Credit (ERC) offset?
The tax credit offsets all withheld federal employment taxes including federal income tax withholding, Employer FICA and Medicare. Any excess credit will be refunded or advanced by the IRS. By refunded, this means the IRS will issue checks and/or direct deposit funds into business bank accounts. Many businesses are missing out on this opportunity, but Steward Hamilton is here to help streamline the process and get you the most tax credit possible.
The tax credit is a sum of capital that taxpayers can directly reduce from taxes owed to the government. In contrast to tax deductions, which function as a way to lower the weight of taxable income, tax credits subtract from the total amount of tax owed. For example, if a taxpayer owes $3,000 in Federal taxes but is eligible for a $3,000 tax credit, the net liability is $0.
How does the IRS define “full-time employment” for the Employee Retention Credit (ERC)?
Full-time employment is defined as having an average of 30 hours per week or 130 hours per month. Qualified wages are determined by how many full-time employees an Eligible Employer has. For the calendar year of 2020, if an employer averaged more than 100 full-time employees in 2019, qualified wages are defined as wages and health care costs paid to employees that aren’t working due to complete or partial shutdown or due to a decline in gross receipts. If an employer averages less than 100 full-time employees during 2019, it is the same principle as a larger company; however, an employer can claim wages for all employees regardless of whether or not they were working. For the calendar year of 2021, the amount of full-time employees was raised to 500, meaning that if 500 or more people are employed only those who are not providing services can be claimed; whereas if there are less than 500 full-time employees, an employer can claim wages for all employees regardless of whether or not they were working.
Some restrictions to claiming wages include if the employer is related to an employee (as defined by section 51(i)(1) of the Internal Revenue Code). In addition, the wages of an employee used for Work Opportunity Tax Credit cannot be included for The Employee Retention Credit (ERC) , the IRS is paying back businesses up to $33,000 for each full-time employee