How to Claim the Employee Retention Credit

The Employee Retention Credit is a refundable tax credit for eligible employers that retain their employees during the COVID-19 pandemic.

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Introduction

The employee retention credit is a payroll tax credit available to eligible employers that retain their employees and pay them salaries and wages during the COVID-19 pandemic.

To be eligible for the credit, an employer must have experienced a full or partial suspension of operations due to a government order related to COVID-19, or have experienced a significant decline in gross receipts (defined below). Employers are not eligible for the credit if they are able to fully operate their business during the relevant period.

The credit is available for qualifying wages paid from March 13, 2020 through December 31, 2020. The maximum credit is $5,000 per employee.

What is the Employee Retention Credit?

The Employee Retention Credit is a credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after December 31, 2019 and before January 1, 2021. This includes qualified health plan expenses incurred or paid by the employer.

To be eligible for the credit, an employer must have a business that has been adversely affected by COVID-19. This includes businesses that have been fully or partially suspended as a result of a government order related to COVID-19. Employers with less than 100 full-time employees are eligible for the credit.

There are other requirements that must be met in order for an employer to claim the credit. For more information, please seeIRS Notice 2020-21 and Form 941-X (Instructions).

How to claim the Employee Retention Credit

To claim the Employee Retention Credit, eligible employers will file Form 941, Employer’s Quarterly Federal Tax Return, for each quarter in which they wish to claim the credit. The credit will be reflected as a reduction of the employer’s liability for Social Security and Medicare taxes. If the employer’s liability for these taxes is less than the amount of the credit, the employer may carry back the unused portion of the credit to any of the immediately preceding quarters and receive a refund from the IRS.

To claim the credit on Form 941, in Part 2 – Credits and Payments, complete lines 19a through 19d as follows:

Line 19a – Enter “ERC”
Line 19b – Enter the amount of credit claimed for each eligible employee
Line 19c – Enter “IRC 5436”
Line 19d – Multiply line 19b by 0.062 and enter that amount

Conclusion

The employee retention credit is a great way to help your business during tough times. By following the steps outlined in this guide, you can make sure that you are able to claim the credit and receive the benefits.

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