How to Claim Employee Retention Credit: A Comprehensive Guide
As a business owner, you know that managing finances can be a daunting task, especially during the pandemic. The government has taken various steps to mitigate the financial challenges faced by businesses, and one of these is the Employee Retention Credit (ERC). This credit is designed to help employers keep their workforce employed during the pandemic. If you’re eligible, you could receive a credit of up to $7,000 per employee per quarter. In this blog post, we’ll guide you through how to claim Employee Retention Credit.
Eligibility for Employee Retention Credit
To claim the Employee Retention Credit, you must meet the eligibility criteria set by the Internal Revenue Service (IRS). First, your business must have experienced a significant decline in gross receipts due to the pandemic. If your gross receipts for a quarter in 2021 are less than 80% of the gross receipts for the same quarter in 2019, you’re eligible for the ERC. Additionally, if you were partially or fully suspended by government order due to the pandemic, you’re also eligible for the credit.
How to Claim Employee Retention Credit
If you’re eligible for the ERC, there are steps you need to take to claim the credit. First, you need to file Form 941, the employer’s quarterly tax return. You can claim the credit as an advance payment on Form 941, which means that the credit will be used to reduce your payroll taxes. Alternatively, you can file Form 7200, Advance Payment of Employer Credits Due to COVID-19, to request an advance payment of the credit.
Recordkeeping for Employee Retention Credit
When claiming the ERC, you must maintain proper records to substantiate your claim. You should keep records that show the amount of the credit claimed and the basis for claiming the credit. Additionally, you should keep records that show the number of employees and their wages, including the amount of qualified wages paid to each employee. These records should also indicate whether the employee was working or not working during the period for which the credit is claimed.
Qualified Wages for Employee Retention Credit
To claim the ERC, you must have paid qualified wages to your employees. Qualified wages for the credit depend on the size of your business. For businesses with 500 or fewer employees, all wages paid during the period of eligibility are considered qualified wages. For businesses with more than 500 employees, only wages paid to employees who were not working due to the pandemic are considered qualified wages.
Claiming the Employee Retention Credit for 2020
If you’re eligible for the ERC for 2020, you can claim the credit on Form 941 for the fourth quarter of 2020, or you can file an amended Form 941-X for the relevant quarter. Alternatively, you can file Form 7200 to request an advance payment of the credit. The deadline for claiming the ERC for 2020 is December 31, 2021.
Claiming the Employee Retention Credit for 2021
If you’re eligible for the ERC for 2021, you can claim the credit on Form 941 for the relevant quarter. Alternatively, you can file Form 7200 to request an advance payment of the credit. If you’re claiming the credit on Form 941, you should report the credit on Line 11c. The deadline for claiming the ERC for 2021 is December 31, 2022.
In conclusion, the Employee Retention Credit is a valuable resource for businesses struggling during the pandemic. If you’re eligible for the credit, be sure to file the relevant forms and maintain proper records. By doing so, you can claim the credit and keep your workforce employed during these challenging times.
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