As you may well know, the employee retention credit is a program developed by the government in 2020 in order to ensure that businesses were able to cover employee salaries, even during the pandemic. The idea was to ensure that as many people were kept in employment as possiblöe, even if the business couldn’t afford to pay them.
In 2021, the Employee Retention Credit program drastically expanded. On this page, we want to help you to determine your eligibility for employee retention credit.
Which Businesses Qualify for Employee Retention Credit?
Businesses both large and small will qualify for the employee retention credit. However, they must meet one of two requirements.
The first requirement is that the business must have had to have closed down under a government order for the time period that the employer is looking to claim the tax credit for. In this case, a business will only be able to claim credit for the time period that they were closed down.
If a business does not meet the first requirement, it may meet the second requirement. This is that the business must have seen s significant decline in income for the time period. They do not need to have been closed down, just demonstrate that the income was far lower than normal. If this can be proven, then the business is able to claim employee retention credit. The drop must be at least 20% in income.
Basically, if you fit one of these two criteria, then you may be able to claim the credit for your business:
- The government ordered you to be closed down for a period of time. This includes both local and federal government orders.
- Income is down.
How Much of the Salary is Covered?
The amount of salary that the employee retention credit covers is far higher than it was in 2020.
In 2020, the employee can claim up to 70% of an employee’s income per quarter. The cap is an income of $10,000. This means that the tax credit can be as high as $7,000. This can be per employee. Larger businesses could be saving a lot of cash per quarter for this. Remember, the credit only applies to the time period the business was impacted. So, if the business was impacted for just a couple of weeks, the employee tax credit can only apply to these 2-weeks. You can’t claim the whole quarter.
At the moment, only the salaries for the first 2 quarters of 2021 are eligible for employee retention credit. It is unknown whether the program will be extended later on in the year. It will be dependent on how the economy is recovering from the pandemic.
If you qualify for employee retention credit, then we urge you to take advantage of it. This will help to ensure that you can keep your staff on. This credit may even help businesses to be ‘saved’, when they otherwise would have been lost due to the crippling expenses of the pandemic.