Employment Retention Tax Credits (ERC) are a great way for businesses to save money and keep their employees on the payroll. ERCs provide tax credits to employers who retain their staff during difficult economic times, helping them survive the downturn while keeping their workforce intact. But with ERC come many questions – what types of businesses qualify? Who is eligible? How much can be saved? What paperwork needs to be filed? Our questions might be retrospective but if there is a claim still due then it would be financially prudent to pursue it as a business. In this article, we’ll answer some of the erc tax credit faq so you can make an informed decision when considering whether or not ERC applies to your business in terms of its eligibility.
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The Types of Businesses that Benefit from ERCs
First, ERCs are available to businesses in the hospitality and leisure industry as well as those that pay wages to employees on the payroll. To qualify, employers must have experienced a reduction in turnover or gross receipts of at least 20 percent when compared to the same quarter of the prior year. Employers can claim ERCs for up to 5 quarters in a row. Then the business can receive the much-needed support to compensate for the unprecedented economic effects of such a devastating pandemic as Covid-19.
If your business saw a downturn in sales or demand for its services and is of the qualifying size, there is likely an ERC claim still to be made. As long as this fall in income occurred during the set Covid period.
Who Is Eligible?
Employees who are included on a company’s payroll are eligible for ERCs, provided their wages do not exceed the maximum ERC credit amount of $7,000 per quarter. This includes full-time and part-time employees, as well as seasonal or temporary workers, who are employed at the time ERCs are claimed.
You might be a small business but some business types still require a lot of staff to run them. The more staff involved in your business during Covid, the greater the ERC payment that might well be due. It is worth checking out with advisors who know about tax credits inside out to point you in the right direction. You do not want to waste anybody’s time but, ultimately, your business may need extra funding because it is still finding times hard.
How Much Can Be Saved?
The ERC tax credit can be up to 50% of wages paid up to $10,000 per employee per quarter. For example, if a business pays a qualifying employee $1,000 in pay during that quarter, they could receive an ERC tax credit of up to $500.
This is a significant saving in wages and one that can make all the difference to the recovery of a business now. Also bear in mind that we do not know when another pandemic may happen to compound the issue. It makes sense to get our finances straight now and have our bank balance at the level it ought to be.
Think of tax credits as like insurance in terms of attempting to put us back into the same position financially that we were in before a crisis or unexpected event. Tax credits can, of course, not hope to compensate in full, but it all helps, and insurance does not pay in full either when you take the deductible into account.
What Paperwork Needs To Be Filed?
Businesses must file quarterly ERC claims along with their applicable payroll taxes and employ the use of the appropriate software to best achieve this.
By understanding ERC tax credits and the answers to some typical questions, businesses can make informed decisions on whether or not ERCs are right for them. This type of tax credit can be a great way to save money while keeping staff employed, so it’s important to understand all of the details before making a decision. With ERCs, businesses can help ensure their survival and success during challenging economic times.