The post What the Employee Retention Credit Means for You by Patton Hunnicutt appeared first on Benzinga. Visit Benzinga to get more great content like this.
When you file an annual tax return for your business, there are several tax credits of which you may take advantage. But, what are these credits, and what does the Employee Retention Credit mean for you—as a business owner or manager? Review these tips so you know the sort of credit you’re taking and how it functions compared to the manner in which your company is run.
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Who Qualifies for the Employee Retention Credit?
Your business qualifies for the Employee Retention Credit given basic criteria, irrespective of size. This includes tax-exempt entities, with only a few exceptions:
- State and local governments along with their instruments do not qualify
- Small businesses who take small business loans do not qualify
To qualify for the credit, you must meet 1 of 2 quarterly tests:
- Your business was suspended by a government order due to COVID during that quarter
or
- Gross income is down 50% from the same quarter in 2019. Once your income rises above 80% compared to the same quarter in 2019, you no longer qualify.
Calculating Your Employee Retention Credit
Calculating your Employee Retention Credit is relatively simple. You will fall into 1 of 2 categories:
- Companies with less than 100 employees on average in 2019–The credit applies to all employees who worked during that quarter.
- Companies with more than 100 employees on average in 2019–The credit only applies to employees who did not work during that quarter but were paid.
The tax credit calculation includes salary, wages and contributions to the employee’s benefits plan
To calculate the Employee Retention Tax Credit, you can claim 50% of the qualifying wages of each employee up to $10,000, including wages paid after March 13th and before December 31st, 2020, and these wages can be deducted from your annual earnings.
Payment of the Employee Retention Credit
Employers are reimbursed for this tax credit with a reduction of the overall amount of payroll taxes they must withhold and are required to deposit with the Treasury.
Frequently Asked Questions
What is the meaning of a tax credit?
A tax credit is offered to businesses and individuals as a way to reduce their taxable income for that year.
What is a tax credit vs a refund?
A tax credit reduces the taxable income of a business or individual. A tax refund is the amount of money paid back to you when you file your tax return—if you’ve overpaid.
The post What the Employee Retention Credit Means for You by Patton Hunnicutt appeared first on Benzinga. Visit Benzinga to get more great content like this.