What is Employee Retention Credit?
Contents
Employee retention credit is a payroll tax credit that is available to employers that experience a decline in business due to COVID-19.
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Introduction
Employee retention credit is a tax credit that businesses can claim for retaining employees during the COVID-19 pandemic. The credit is available to eligible employers that keep their employees on the payroll, regardless of whether the business is currently operating or has been impacted by COVID-19. The credit is equal to 50% of eligible wages paid to each employee, up to a maximum of $5,000 per employee. The employee retention credit is claimed on the employer’s quarterly payroll tax return (Form 941).
What is employee retention credit?
The employee retention credit is a refundable tax credit for employers equal to 50 percent of qualifying wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees during the COVID-19 pandemic.
The credit is available to eligible employers for qualified wages paid after March 12, 2020, and before Jan. 1, 2021. For employers with more than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to COVID-19-related circumstances, such as a decrease in gross receipts or governmental order to shut down operations. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, regardless of whether the employer is open for business.
The credit is claimed on the employer’s quarterly employment tax return (Form 941).
How to claim the employee retention credit
The employee retention credit is a fully refundable tax credit for eligible employers equal to 50% of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees.
To claim the credit, eligible employers must file Form 941, Employer’s Quarterly Federal Tax Return, for each quarter in which they claim the credit. The instructions for Form 941 include a worksheet that eligible employers can use to figure the amount of employee retention credit they are entitled to claim.
Eligible employers can choose to receive an advance payment of the employee retention credit by submitting Form 7200, Advance Payment of Employer Credits Due To COVID-19.
Examples of businesses that can claim the employee retention credit
There are a few examples of businesses that can claim the employee retention credit:
-A hotel that was forced to close due to the pandemic
-A restaurant that was forced to reduce its hours of operation due to the pandemic
-A manufacturing company that had to shut down its operations due to the pandemic
Conclusion
Employee retention credit is a refundable tax credit for eligible employers that retain their employees during the COVID-19 pandemic. The credit is designed to encourage businesses to keep workers on their payroll. To be eligible, businesses must have experienced a significant decline in gross receipts or been forced to shut down due to the pandemic. The credit is available for wages paid from March 13, 2020 through December 31, 2020.
