Owning a business requires you to have people in place who can help run your company. Keeping them happy is essential and says a lot about a workplace environment when employees stay for a long time. After all, having consistent employees is vital to your workflow and for servicing your clientele. Still, it’s also no secret that salaries are one of the most significant expenses for most companies.
Keeping folks employed over the past few years has been complex as COVID-19 strained businesses. However, the good news is that the government rewards companies for holding on to their staff. Employee Retention Credits (ERC) are tax credits to help with the cost of keeping your workers employed. Here’s how to calculate your potential upcoming credits, which can offer much-needed financial relief for your company.
What is Employee Retention Credit?
According to the IRS, the purpose of ERC is to encourage “businesses to keep employees on their payroll.” It falls under the CARES (COVID Aid, Relief, and Economic Security) Act and comes as a refundable tax credit for wages and benefits paid during 2020 and the first three quarters of 2021. It’s important to note that this isn’t a loan or something you’ll have to pay back in the future. Instead, it’s grant money in your pocket to help your business keep moving forward.
Is it too late to file for ERC?
You may not be alone if this is the first time you’ve heard about the credits or if you’ve neglected to apply—only 8% of businesses filed in 2020, followed by only 10% in 2021. The good news is that it’s not too late! You can retroactively file, but you should do it as soon as possible to help increase your cash flow.
Read more: How to claim the ERC
How much will my business receive for retaining employees?
Before getting into how to calculate ERC, you may be interested in what you will potentially receive. Here’s a breakdown of what is available and any restrictions that may apply to you.
- 2020 ERC Claims – For 2020, you can receive a credit of up to $5,000 per employee, but there are a few stipulations. If you received PPP (Payroll Protection Program) assistance, didn’t pay by the deadline, or had your PPP loan forgiven, you aren’t eligible for a refund of wages paid during 2020.
- 2021 ERC Claims – For 2021, you can receive a credit of $7,000 per employee for wages paid during the first three quarters of 2021.
What forms do I need to calculate ERC?
- You should have your tax returns available for 2019, 2020 (only if you qualify), and 2021 (regardless of whether or not you took advantage of PPP).
- Look at this IRS notice to see if you meet the requirements to apply for and receive ERC.
- This IRS form will help you calculate, so have it handy.
How to calculate Employee Retention Credit?
Of course, Bottom Line Concepts can help you calculate, but if you’d like to figure it out on your own, here’s how to calculate your ERC.
- See if you experienced COVID-mandated closures during 2020 and the first three quarters of 2021. These would have been deemed necessary by the local or federal government.
- Establish the number of full and part-time employees that received a paycheck in the qualifying periods during 2020 and 2021.
- Compare your 2020 revenue to your 2019 revenue. To receive ERC, you’ll need to show that you had a markable decline of 50% or more in earnings for your business. Compare this for each quarter in 2019 vs. 2020. Do the same for 2021, yet the lost revenue will only need to be 20% less than the corresponding quarter in 2019.
- Determine the wage payments you made to your employees during any time that your business was mandated to close. Again, this is for both full and part-time employees and includes health insurance costs, salary, and wages.
Bottom Line Savings can help you determine your ERC!
If it sounds confusing, that’s ok! We at Bottom Line Savings can help see if you qualify for Employee Retention Credit. Our ERC service and process are simple and painless, and we’re here to help you get started.