ExecutiveChronicles | What You Should Know About ERC | Studies show that the pandemic caused over 100,000 businesses in the US to close. This resulted in a huge loss in the economy. How do you save your business in this situation?
The US government came up with a program to help employers save their organizations. The CARES act provides financial help to households and businesses.
One of the projects is the employee retention credit. The ERC is a refundable tax credit, helping businesses with their finances. Read on to learn more about ERC and how it can affect your business.
- The ERC Program
The US government established the CARES Act in response to the collapsing economy. The statute includes employee retention credit to help small businesses.
The employee retention credit is a tax credit and business relief plan. It encourages businesses to keep employees on the payroll. The ERC program allows employers to claim a part of the qualified wages paid to their workers.
Qualified employers can receive up to 70% of the $10,000 wage limit, including other costs. The $7,000 is the highest refund per employee and per quarter. The 70% is applicable for 2021 and 50% for 2020.
The ERC reduces your tax payment, saves you money, and allows your business to recover.
- Eligible Employers
The ERC program isn’t only available for businesses. Tax-exempted organizations are also eligible for employee retention credit.
The employers qualified for ERC are those who halt operations per government orders. Businesses that reduced hours of operations, limited services, and more. Organizations that experienced gross receipts downturn in 2020 and 2021 are eligible, too.
The American Rescue Plan extended the qualifications to businesses that opened after February 15, 2020. It includes organizations that suffered from a 90% declining revenue or more.
The ERC reduces the payment for payroll tax deposits and allows an advance refund. Thus, employers can use the excess to recuperate from the losses and get fast access to finances.
- Qualified Wages
Wages are another crucial factor to consider when applying for ERC. The qualified wages depend on the number of full-time employees working for you. It’s your payment to your staff, including health care costs.
A business with less than 500 workers is eligible for ERC. You base it on the wages paid to the employees, whether they worked or not.
- Claiming ERC
Claiming ERC today follows few procedures. Report your total qualified wages per quarter, including health insurance costs. With this, you can claim credits with Form 941, which is the Employer’s Quarterly Federal Tax Return.
Do this if you find out you’re eligible for ERC. You can also request employment retention credit on Form 944 or Form 943.
Fill out and submit Form 7200 if your employment taxes don’t cover the payments. This is the Advance Payment of Employer Credits Due to COVID-19. Form 7200 allows you to ask for an advance of the ERC.
Claiming ERC looks simple and easy with a few steps. However, it’s best to consult experts to ensure correct filing for ERC.
ERC and What It Can Do for Your Business
The ERC plan is one of the biggest business relief plans from the government. It aims to keep workers employed during the pandemic. The ERC program helps businesses in many ways.
The employment retention credit reduces your tax payment and saves you money. It allows your business to recover from the economic decline. If you want to learn more about helping your business bounce back, check out our other blog posts.