Council Post: Employee Retention Tax Credit For Business Owners

President at BSM Accounting Services.

As business owners, some of our primary responsibilities are paying and supporting our employees. The pandemic, along with the shutdowns that ensued, made this very difficult for many of us and led to Congress passing the CARES Act. In an effort to further assist small businesses damaged by the pandemic, they have now introduced the Employee Retention Credit.

Per the IRS, this is a refundable tax credit against certain business charges equivalent to 50% of the certified wages a qualified boss pays to representatives after March 12, 2020, and before January 1, 2021. Qualified business owners can get prompt admittance to the credit by reducing tax deposits they are normally required to make. Likewise, if the employer’s employment tax deposits are insufficient to cover the owed credit, the employer may get an advanced payment from the IRS using form 7200.

At BSM Accounting Services, we’ve been helping clients apply for the PPP loan, SBA disaster loans and many other measures passed by Congress throughout the pandemic. In this article, I’ll dive into the Employee Retention Credit, who’s eligible and whether you should apply. 

Who’s eligible?

Employers and nonprofit organizations are eligible if they were running a trade or business over the span of the year 2020.

The IRS states two conditions:

1. Suspension of operations due to government orders or pandemic related effects.

2. A significant decline in gross receipts.

Essentially, gross receipts have to be down 20% or more in 2020 from the same quarter in 2019. If you were not in business in 2019, you may still qualify if revenue for the current calendar year dropped more than 20% when compared to the same fiscal period in 2020.

The Employee Retention Credit is applicable to all qualified wages, including certain health plan benefit expenses paid during the specified calendar year in which business operations were interrupted.

What wages qualify?

Criteria regarding qualified wages are generally based on the number of employees your business has.

If your business had 100 or fewer (full-time) employees throughout 2019, those employees’ wages would generally qualify, including their healthcare costs. The claims can be up to $10,000 paid to an employee, regardless of whether the employee provided services during that time. 

If you have over 500 employees, check out the IRS’s page for more information.

Is every business owner eligible?

There are a number of caveats regarding the impact of credit and receipt of other relief provisions when it comes to claiming the Employee Retention Credit.

Below are a couple of the reasons you may not be eligible:

1. You were allowed work opportunity tax credit. This falls under Sec. 51 of the Internal Revenue Code for employees.

2. You received a small business interruption loan under the Paycheck Protection Program (PPP).

Additionally, wages for the retention credit do not include wages for which the employer received a tax credit for sick leave under the Families First Coronavirus Response Act (FFCRA). 

Should you apply?

It’s not every day that Congress passes relief for business owners. It would be smart, at a minimum, to check your eligibility. The Employee Retention Credit was rolled out along with the second round of the Paycheck Protection Program. Taking advantage of these support offerings may be critical to some businesses’ survival through these tough times, and it can only help to check if you’re eligible. 

If the last round of PPP taught us anything, it’s that funds run out quickly. Ensure that you stay on top of the coming stimulus programs and take advantage where you can. 

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?