Did you know that your business could claim back up to $28,000 of wages per employee for the year 2021?
Thanks to employee retention credits, you could claim a surprising amount of money at a time when it’s never been more important to save. But as with anything tax-related, it’s important to know what you’re doing when you make your claim.
Read on for your one-stop guide to employee retention credits: what they are, how to claim them, and how much you could claim back.
What are Employee Retention Credits?
In 2020, Congress introduced the CARES Act. This set out to provide relief to those affected by the coronavirus pandemic. It aimed to encourage employers to keep their employees even through mandatory lockdown.
To achieve this, the CARES Act created the employee retention tax credit. In 2020, these tax credits were worth 50% of employee wages up to $10,000 per employee per year. Employers were able to claim a maximum credit of $5,000 for any wages paid from March 13, 2020.
Thanks to an update, employee retention credits are now worth 70% of qualified wages. The wage limit per employee was also increased, rising from $10,000 per year to a massive $10,000 per quarter.
That means employers could claim up to $7,000 per quarter – $28,000 per year – for each eligible employee.
Who Can Claim?
Most employers are eligible to claim employee retention credits! That includes colleges, hospitals and 501(c) organizations. It also includes private-sector businesses trading during 2020 or 2021.
To claim, you need to be able to prove one of the following factors:
- Your business was suspended or required to reduce business hours due to a government order relating to COVID-19.
- Your business suffered a significant decline in gross receipts in the quarter for which you want to claim.
Your business might have remained fully operational through a government-ordered lockdown. Even so, you could still be eligible to claim if your gross quarterly receipts fell below 50% compared to the same quarter in 2019.
You can also find more information here on how to get the most out of employee retention.
How to Claim Your Credits
If you didn’t claim your credits in 2020 or 2021, you’re not alone! You can still file an amended return for each quarter in which you want to claim.
Usually, you will need to file International Revenue Service Form 944-X or Form 943-X. But if your business took out a loan under the Paycheck Protection Programme, you should file Form 941-X instead. Any wages paid using a PPP loan don’t qualify for employee retention credits, so make sure you account for that when filing your form!
Remember, you can only claim on wages paid between March 12, 2020 and September 30, 2021.
Keeping Your People
The pandemic has been hard on everyone. If you’ve gone the extra mile to keep people employed, you deserve to claim back what you can in tax credits!
And with the money you receive in employee retention credits, you’ll be able to build back better as the world reopens.
If you’re a business owner and you’re committed to building on your success, why not browse some more of our helpful guides? We’re behind you and your business all the way.