Employee retention credit is a tax break that is available to businesses that meet certain requirements. This tax break can be valuable, but it can also be confusing to understand. In this blog post, we will discuss how employee retention credit works and how it can affect your tax return. We will also provide some tips on how to claim this credit correctly. This blog post is for informational purposes only and does not constitute tax advice. Please consult a tax professional for specific advice regarding your business.
How can ERC affect your tax return?
The employee retention credit is a tax credit that is available to businesses that keep their employees on the payroll during the COVID-19 pandemic. This tax credit can be used to offset the cost of wages that are paid to employees during this time. The credit is equal to half of the qualified wages that are paid to each employee, up to $5,000 per employee per quarter in 2020 plus $7,000 for the first three quarters of 2021, for a maximum of $26,000 per employee.
The maximum was supposed to increase to $28,000 for the four quarters in 2021 — see the original White House announcement here. Unfortunately, the program was sunsetted earlier than expected, with eligibility closing with the end of Q3, September 30, 2021. Businesses were required to either apply in their October 31, 2021 quarterly tax filing — or you have up to three years to file an amended tax return from the date of the original.
How to claim employee retention credit correctly
To claim the employee retention credit, businesses will need to file an amended Form 941x for each quarter they are eligible. This form must be filed even if the business is not required to file payroll taxes for that quarter. Businesses will also need to provide documentation to support the claims made on Form 941. This documentation can include payroll records, bank statements, and cancelled checks. Businesses should keep in mind that the employee retention credit is a refundable tax credit. This means that if the business owes less in taxes than the amount of the credit, the business will receive a refund for the difference.
Tips for businesses to get the most out of their employee retention credit
Businesses that are eligible for employee retention credit should take advantage of it if they can. This tax credit can be used to offset the cost of wages paid during the COVID-19 pandemic and can help businesses keep their employees on the payroll. Businesses should make sure to file Form 941 and provide documentation to support their claims, such as payroll records, bank statements, and cancelled checks.
The employee retention credit is a valuable tax break for businesses that are able to take advantage of it. This credit can help businesses offset the cost of wages paid during the COVID-19 pandemic and keep their employees on the payroll.
Additional resources on employee retention credit
If you have further questions about the ERC program, or to discuss your eligibility or the amount of credit you can claim, contact American Financial Tax Services.
Follow these steps to apply for the ERC program:
- Determine your business’ eligibility
- Calculate the amount of credit you can claim
- Apply for the credit by filing Form 941
- Keep records and documentation to support your claim
- Claim the credit on your tax return.
The IRS has released guidance on employee retention credits:
https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act
https://www.irs.gov/coronavirus/employee-retention-credit
If you have any questions about the employee retention credit or how it can affect your tax return, please contact a tax professional or American Financial Tax at ___.
The Small Business Administration has also released guidance on employee retention credit:
https://www.sba.gov/document/support–faqs-employee-retention-credit-frequently-asked-questions
ERC Rapid Response Application
If you have any questions about how the employee retention credit can affect your tax return, or if you need help claiming this credit, please contact our office. Our team of ERC professionals can help you navigate the complexities of the program and make sure that you are taking advantage of all of the deductions and credits that you are eligible for.
