It is difficult to overstate how severely COVID-19 has disrupted business. Many business owners navigated complex systems to tap into financial assistance from the federal government, such as PPP loans, in order to keep their employees on the payroll. If you fought hard to protect your employees and continued to pay them even while your business suffered, there is now a tax incentive designed to partially reimburse you for these costs. The Employee Retention Credit falls under the CARES Act. It incentivized businesses to keep paying their employees in order to reduce the burden on the unemployment system and to keep staffs intact. Originally, the Employee Retention Credit was not meant for businesses that used PPP loans. However, in December, that law changed. Are you eligible to receive up to $5,000 per employee you paid during 2020? Here is what you need to know.
Employee Retention Credit 101
The Employee Retention Credit is an incentive that allows eligible businesses that paid their employees during 2020 to receive a refundable tax credit of 50% of wages, up to a maximum refund of $5,000 per employee, representing $10,000 of wages paid. Even if your business received PPP loans, you are still eligible to receive this Employee Retention Credit if your company meets other qualification criteria. Note that this credit is only for businesses that were negatively impacted by COVID-19.
Two Ways to Qualify
All businesses that are considered for the Employee Retention Credit must have fewer than 100 employees and must have paid wages between March 12, 2020, and December 31, 2020. For businesses that meet those criteria and suffered due to COVID-19, there are two ways to qualify for the Employee Retention Credit:
- If your business was shut down by the government as a non-essential business, then wages you paid during the shutdown are eligible.
- If your business was not shut down, you must show a decline of at least 50% in gross receipt over 2019.
These factors are viewed on a quarter-by-quarter basis. Wages paid in any period in which you were shut down by a government order qualify. If you are relying on gross receipts, you are eligible for wages paid in every quarter until you reach the point that your gross receipts have recovered to 80% or greater of 2019 levels. Wages paid until the end of the quarter in which you reach that threshold are eligible.
Employee Retention Credit Assistance
If your business was subject to a government shutdown, understanding your qualification for the Employee Retention Credit is fairly straightforward. However, working off gross receipts can be more complex. In either case, you must subtract any PPP loan money used to pay wages from the amount you are claiming.
The Royce CPA Firm has several strategies to assist businesses at tax time to maximize Employee Retention Credit refunds. Do you use QuickBooks Online? If you have given us access to your account, then we have already calculated the first part of the equation for you. This means you can see exactly where you stand. We can also help to ensure your PPP money is used strategically to pay for non-wage expenses. This will help to maximize the credit. If you aren’t using QuickBooks Online, we can share our spreadsheet with you to assist.
This year is more complex than most when it comes to preparing your business taxes. Now is not the time to leave unclaimed credits on the table. Trust The Royce CPA Firm to provide you with expert tax preparation that taps into every advantage available to you. We strongly recommend using QuickBooks Online to facilitate the fastest, most accurate returns. Contact our CPA firm in Tucson for more information by calling (520) 321-4626.