The pandemic has been hard on everyone, but there is good news. As an employer, if you were able to retain employees during COVID-19, the employee retention credit of the American Rescue Plan has been extended.
The Employee Retention Credit (ERTC) is a refundable credit businesses can claim on qualified wages, including specific health insurance costs, paid to employees. As a result of the American Rescue Plan Act enactment, most employers, including hospitals, colleges, and 501(c) organizations qualify for the credit.
Businesses may not meet this criteria if:
- The business location was shut down but still able to continue operations to a large extent
- The business is considered essential, unless they have a supply of critical material or goods disrupted in a manner that affects their ability to continue to operate.
For the companies that do qualify, employee eligibility is determined by a couple of factors:
- The credit applies to the portion of the quarter the business was suspended, not the entire quarter.
- The employer had a significant decline in gross receipts
What wages qualify when calculating the retention credit?
In general, wages that are subject to FICA taxes and eligible health expenses qualify when calculating ERTC. Eligible wages and expenses paid after March 12, 2020 through December 31, 2021 may qualify for the credit.
To determine which qualified wages can be included, you must first determine the number of full-time employees. For ERTC, a full-time employee is defined as one that worked at least 30 hours per week or 130 hours in a month.
How do the credits work?
The employee retention tax credit is claimed against Federal employment taxes paid by the employer. If the credit exceeds the total liability of the portion of Social Security or Medicare, the excess is refunded to the employer. And at the end of the quarter, the amount of these credits will be reconciled on their Form 941. Credits from prior quarters may be claimed by filing
If you or any employer have any questions or need more information, give us a call and we’d be happy to help.