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The Congress established the Employee Retention Credit (ERC) during 2020 to lessen the consequences of the COVID-19 pandemic. The ERC is for businesses who struggled to maintain their headcounts. With Employee Retention Tax Credit (ERTC), businesses can use a refundable credit as a tax deduction for some expenses.
The employee retention tax credit became even more enticing when it could be combined with the Paycheck Protection Program (PPP). In order to cover the disruption in 2021, it has since been extended. The interaction of these variables prompts several crucial queries regarding the employee retention tax credit’s explanation. Below is a brief overview that we have put together to help your company better understand your alternatives.
WHAT IS EMPLOYEE RETENTION CREDIT?
The Employee Retention Credit was introduced by the Congress in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to encourage firms to retain their workers on the payroll throughout the COVID-19 pandemic last 2020. This credit is applicable to employees in the United States of America.
Under the initial terms of the tax credit, a maximum credit of US$5,000 was permitted for salaries earned between March 13, 2020 and December 31, 2021. Since then, an update has brought the percentage of qualifying earnings up to 70% for 2021. The per-employee salary ceiling was raised from US$10,000 annually to US$10,000 quarterly.
All qualified firms that pay employees appropriate wages are entitled for the credit. However, there are separate restrictions that apply to employers with fewer than 100 and fewer than 500 employees.
WHAT IS EMPLOYEE RETENTION TAX CREDIT?
A widespread refundable tax benefit called the employee retention tax credit was created to promote employers must continue paying their employees. 50% of the first US$10,000 in earnings paid by an employer is credited. A business owner whose operations are wholly or partially interrupted due to COVID-19 or whose gross receipts greater than 50%.
6 IMPORTANT THINGS TO KNOW ABOUT EMPLOYEE RETENTION CREDIT 2022
We have listed the things you need to know regarding employee retention credit.
#1) HOW MUCH IS THE ERC PER EMPLOYEE?
For 2020: The maximum ERC per employee is US$5,000.
For 2021: In the first three quarters of the year, the maximum ERC is US$7,000 per employee and quarter, for a total maximum ERC of US$21,000 per employee.
Businesses can refund the tax credit with an amount up to US$26,000 per employee.
#2) EMPLOYEE RETENTION CREDIT ELIGIBILITY
To be a qualifying employer, you must be able to demonstrate that your business experienced one of the following:
- Your business experienced a partial or total shutdown during 2020 or 2021 (including being constrained by commerce, being unable to travel)
- Gross receipt reduction
Businesses that had to cease operations completely or partially as a result of COVID-19 government limitations. Additionally, companies qualify for the employee retention credit if they lost 50% of their gross receipts from the same quarter.
A trade or business that must cut back on hours due to a government edict, either completely or partially. Only the portion of the quarter during which business is interrupted is eligible for the credit.
An employer whose gross receipts have significantly decreased.
- The IRS published in August 2021 the Revenue Procedure 2021-33 which offers a safe harbor under which an employer may exclude the amount of a PPP loan forgiveness and the amount of a Shuttered Venue Operators Grant or a Restaurant Revitalization Fund grant from the definition of gross receipts solely for the purpose of determining eligibility to claim the ERTC. Employers are required to consistently apply the safe harbor to all organizations.
#3) WHAT SALARIES CAN BE USED TO QUALIFY FOR THE EMPLOYEE RETENTION CREDIT?
Qualified wages are any wages paid to an employee by an eligible employer between March 12, 2020 and January 1, 2021. Given the company’s reduced gross sales or any shutdown, all wages provided to employees are treated as qualifying compensation.
The employee retention credit is a grant-like that can be reimbursed to the employee. You can reimburse depending on your salary, health insurance, and other personnel costs that you have already paid. Regardless of size or sector, all firms can use the employee retention tax credit.
#4) HOW DO YOU CLAIM THE EMPLOYEE RETENTION CREDIT?
You can claim the employee retention credit by lowering your business’ employment tax payments before filing your quarterly employment tax returns. Using IRS Form 7200, certain employers can ask for the credit to be paid in advance.
If the employee retention tax credit exceeds the employer’s overall tax liability, the excess will be returned to the business owner.
It is crucial to ensure that all eligible expenses are included on PPP loan forgiveness forms in order to maximize the acceptable wages available for employee retention credit.
#5) WHAT ARE THE ADVANTAGES OF TAKING THE EMPLOYEE RETENTION CREDIT?
Not having to pay a significant amount of payroll tax is the employee retention credit’s primary benefit for small businesses. This will provide them with more cash which they can use to keep their company afloat. Now that more individuals are vaccinated, some businesses are using the tax credit to meet an increase in demand.
Another advantage is that a Payment Protection Program (PPP) loan can now be used in addition to the employee retention credit. Business owners can now enjoy combining their PPP loan and tax credit. The employee salary used to get a PPP loan forgiveness, however, cannot be used to determine the employee retention credit amount.
#6) CAN I CLAIM EMPLOYEE RETENTION CREDIT AND PPP TOGETHER?
Absolutely! Initially, you could not get the employee retention tax credit if you took out a PPP loan. The Consolidated Appropriations Act (CAA), which was passed in December 2020, declared that allowing small businesses to take advantage of both opportunities as long as they complied with the regulations and met the eligibility conditions. On PPP forgiveness application, it is important to keep in mind that businesses cannot identify a payroll expense as an employee retention tax credit wage and a payroll cost.
THE ROLE OF BPO IN EMPLOYEE RETENTION CREDIT & WHY SHOULD YOU OUTSOURCE EMPLOYEE RETENTION TAX CREDIT?
The financial statements must include information about the accounting method used, significant terms, and the amounts reflected.
Here is why employee retention tax credit should be outsourced. Here are just a few of the many benefits of outsourcing ERTC:
Source: Magellan Solutions
#1) EXPERTISE
ERTC may be challenging to understand. Internal challenges may arise for your teams as they try to complete this process, especially as standards and laws evolve.
This duty can be outsourced to professionals who are entrusted with staying up to date with the regulations.
The frequent mistakes made by unqualified staff can be avoided with the help of outsourced ERTC service providers. With the help of cutting-edge technology, experts can guarantee that this task is completed accurately and on time.
#2) FOCUS ON CORE TASKS
In a developing business competing in a competitive labor market, human resources are scarce. By outsourcing, you can give your employees more time to work on other important project facets of the business.
You get access to a knowledge source where you can immediately handle any issues or problems that can emerge.
#3) ENSURED COMPLIANCE
Filing an employee retention tax credit may be challenging and sluggish given the diversity of state requirements that must be satisfied. This is especially true for larger firms with activities in many different states and cities.
Audits and hefty fines could be the outcome of even a single error. Indeed, as more countries fail to comply, the penalties and fines can become increasingly severe.
By avoiding punitive measures, outsourcing employee retention tax credits to a skilled outsourcing company can help ensure compliance and save money.
#4) COST REDUCTION
Errors in calculations and filing could have detrimental effects. In either scenario, these activities must be undone, involving more time and expense for firms to fix their mistakes.
Employee retention tax credit may be outsourced to guarantee fair pay to employees and that the necessary documentation is performed correctly. These experts can help businesses avoid excessive fines, freeing up resources for other important tasks.
#5) BE INFORMED WITH THE CHANGES
You might not be able to keep up with the rules and regulations as they change depending on your financial circumstances. Where outsourcing ERTC can be useful is in this situation.
Experts possess a wide range of knowledge and have awareness of the frequent changes. It is guaranteed that there are no errors made when claiming ERTC.
WRAPPING IT UP
The employee retention credit was established in order for small business owners to pay their employees throughout the COVID-19 outbreak. End of 2021 marked the end of the credit.
Employers still have time to submit a credit claim for the period of March 2020 until September 2021. For the months of March 2020 through December 2021, startup firms in recovery can still file.
Outsourcing employee retention tax credit is a wise business decision. This action provides organizations access to skilled talents who make use of advanced technology in order to avoid hefty fines.
You can start to outsource your ERTC to BPO companies that provide accurate solutions and results.
OUTSTANDING OUTSOURCING SERVICES AWAITS YOU HERE IN MAGELLAN SOLUTIONS
Magellan Solutions takes pride in providing top-notch outsourcing and customer services for your business’ goals.
With more than 18 years of experience in the field, we are proud to offer only quality call center services for SMEs. On top of that, we are an outsourcing company that is ISO- and HIPAA-compliant.
Contact us and let us discuss your company needs.
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