As a small business owner, it’s essential to be aware of the various taxes associated with running a business, but let’s be honest—taxes are boring. The most enjoyable part of filing taxes is getting reimbursed for overpayment. Knowing whether or not your company is eligible for a tax refund can save you money and help ensure that you’re fully compliant with all IRS regulations. That’s why in this blog post, we’ll be looking at one of the best tax refunds for small businesses, the Employee Retention Credit, so you can have an understanding of when and how it works.
What Is The Employee Retention Credit (ERC)?
The Employee Retention Credit is supplied through federal aid like the Small Business Healthcare Tax Credit. It reimburses businesses with up to 50% of the qualified wages paid to employees during specific periods of the COVID-19 pandemic. Whether you had to shut down or just encountered major declines, this credit is a lifeline that can help reward you for keeping your employees on payroll during that tough time.
Which businesses can qualify for the Employee Retention Credit?
Many businesses can qualify for the credit if they were somewhat or completely affected by the pandemic in the following ways:
- The business was fully or partially suspended due to a government order
- The business experienced a significant decline in gross receipts in 2020 or the first three quarters of 2021
- The business qualified as a recovery startup business in the third or fourth quarters of 2021
How Do I Apply for Employee Retention Credit?
To apply for the tax credit, business owners must file Form 941-X, the Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, with their federal tax return. However, the ERC filing process can be complex.
Luckily, companies like RefundsPro are here to guide you through this process with ease and confidence. They specialize in assisting small and medium-sized businesses with their filings. If you had employees during 2020 or 2021, you probably qualify for a covid-related tax credit worth up to $26k per employee.
In just 5 minutes, you can see if you qualify through their quick questionnaire and be well on your way to claiming this beneficial refund.
When Is The Deadline To Apply For The Employee Retention Credit?
As of March 2023, employers that meet the eligibility requirements can still file retroactively.
How Much Is The Employee Retention Credit?
According to the Treasury Department, businesses can be credited up to $5,000 per employee for 2020 and up to $7,000 per employee per quarter for the first 3 quarters of 2021. Therefore, the maximum tax credit available to an employer is $26,000 per employee, although the average is $11,000 per employee.
How Can I Spend The Employee Retention Credit?
While you can’t blow it on any frivolous expenses, it is a fully refundable tax credit. That means you’re looking at a potential reimbursement of up to 50% of up to $10,000 in wages per employee per quarter. If you struggled during the pandemic, this credit might just be a lifeline your business needs.
Does The Employee Retention Credit Have To Be Paid Back?
No! The ERTC is like a big pat on the back from the government, thanking you for your resilience and determination. Instead of a loan, the ERTC is considered extra reimbursement in the form of employer credits. It’s like hitting the jackpot, but instead of gambling, you were just doing what you do best.
If I Received a PPP Loan, Can I Still File For The Employee Retention Credit?
Thanks to the Consolidated Appropriations Act (CAA), small businesses that received a PPP loan can still apply for the Employee Retention Credit. However, payroll expenses can’t be claimed as both an ERC wage and a forgivable cost on the PPP loan forgiveness application.
As a small business owner, it can be a bit overwhelming to understand all of the nuances when it comes to taxes. But the good news is that you can take steps to maximize your tax savings.
The Employee Retention Credit is one of the best tax refunds for small businesses and it’s worth exploring if you think you may qualify. We hope this blog post has given you a better understanding of how the ERC works, so that you have the opportunity to get back as much money as possible – and feel reassured knowing you are compliant with IRS regulations.