This year, you may have noticed the opportunity to choose an employee retention credit when filing your taxes. As the name suggests, this is a credit you can receive for employee retention. More specifically, your business will be rewarded for retaining employees throughout the pandemic.
Put simply, many businesses were forced to either fire or lay off a large percentage of their employees due to government regulations. However, there is other information that you need to understand the employee retention credit. Let’s get started.
1. What Employers Qualify?
As you might guess, understanding the type of employers who qualify is one of the most important factors to keep in mind. In order to take advantage of this opportunity, your business must have been partially or fully suspended as a direct result of a government order.
The credit you receive will only apply to the portion of each quarter during the year that your company suspended its operations. So, if you couldn’t operate normally for approximately half of Q2, you would only be compensated for this exact amount of time and not all of Q2. Additionally, businesses that had a substantial decline in gross receipts can also qualify for the employee retention credit.
2. What Wages Qualify?
In order for wages to qualify, they must have been paid after March 12, 2020. Additionally, they must have been continually paid until December 31, 2021.
It’s important to note that you can only receive credit for wages that are not forgiven under the PPP loan. This is to prevent businesses from receiving unnecessary compensation.
3. Can I Claim the Credit Retroactively?
If you are seeking to claim this credit for past quarters, you must file Form 941-X for each applicable quarter. Be sure to keep this opportunity in mind when moving forward.
Otherwise, you could potentially miss out on tens of thousands of dollars (or even more) in credit. Be sure to keep this opportunity in mind when moving forward. It should come as no surprise that having accurate records of all of your payroll details will help expedite this process.
For companies who are looking to improve the way they manage payroll at their business, tools like those offered by Ignite HCM are ideal.
4. What if I Use a Professional Employer Organization?
You’ll need to use information from the aggregate Form 941 and Schedule R in order to receive credit if you use a Professional Employer Organization. This is simply due to the fact that employers in a Professional Employer Organization do not have an individual 941 filed.
Failure to do so could cause you to forfeit your credit.
Understanding the Employee Retention Credit Is Crucial
Under some circumstances, they can help you save a significant amount of money. So, keep the above guide about employee retention credit in mind so that you can make the most of this opportunity.
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