It is no secret that many small businesses were affected by the COVID-19 pandemic. This is why the United States government stepped in to try to help. One resource that the government provided was the Employee Retention Credit, also known as the ERC.
This has become a very important tool for employers that struggled to keep their business doors open and their employees on board while they had to shut down shop thanks to government orders during the pandemic.
Unless you are a certified accountant you might be a bit confused and overwhelmed with claiming this credit. We have put together the guide below to share our top tips to help you claim the ERC successfully.
Read on to learn more.
Understand the Requirement to Be Eligible
Before you can try to claim the credit on your taxes you need to understand the requirements to be considered eligible. One way to be eligible for the employee retention credit is to have seen a 50% or more decline in gross receipts in comparison to the same quarter the previous year.
Your business also has to have experienced either a part time suspension or 100% suspension of your operations because of government related orders thanks to COVID-19.
Current legislation has expanded the eligibility requirements and also the credit amounts. Thanks to the Consolidated Appropriations Act of 2021, you can claim the ERC for the wages that you paid between January 1, 2021, through December 31, 2021. Also, current legislation increased to amount to 70% and up to $10,000 of qualified wages per employee per quarter.
Calculate Your Credit Amount
Calculating the right amount of the employee retention credit is also important when it comes to filing your correct taxes. The tax credit can be up to 70% of qualified wages that are paid to employees and we recommend working out ERC to ensure that you calculate this correctly. The maximum you can claim per quarter for each employee is $10,000.
Also, keep in mind that you are not allowed to claim the same wages that you claimed for your PPP loan forgiveness application.
Form 941
The proper form to claim the ERC is called Form 941. This is the Employer’s Quarterly Federal Tax Return form. The key is to correctly calculate the credit on the form and also include this credit on the correct line of Form 941.
Organized Records
There is nothing more important than keeping good records because it will be necessary to provide documentation in order to support your claim. You will need to gather all of your business’s gross receipts along with records showing that government orders led to either partial or full suspension of your business operations.
Something else that you need to provide are records of the qualified wages that you paid to your employees.
Seek Advice
Unless you are experienced in taxes and tax laws, we definitely recommend seeking professional advice because the ERC can be a complex process. Because of it being so complex it is easy to make mistakes.
A tax professional will be in your corner helping you navigate the entire tax process and ensuring that you claim the employee retention credit correctly. If you missed out on taking advantage of this credit during your last two tax seasons, talk to your accountant. You might be eligible to amend your taxes and still take advantage of this credit.
Separate Wages for PPP and ERC
If your business took advantage of the Paycheck Protection Program also known as PPP then you can’t use those same wages for the ERC. It is important to keep separate records of wages paid for the PPP loan forgiveness program and the employee retention credit.
With separate records it will keep you from accidentally double-dipping and dealing with penalties from the IRS in the future. You can still claim the ERC even if you claimed the PPP, but you just can’t use the same wages for both programs.
Ready to File Your Taxes Like a Pro?
In case you were not aware taking advantage of the Employee Retention Credit will help provide financial assistance if you are struggling to keep your employees because of the pandemic. Your business can successfully claim the ERC and lower your financial burdens by understanding the requirements, calculating the amount correctly, understanding Form 941, organizing your records, and seeking advice from the pros.
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