Employee Retention Credit FAQ

November 13, 2020

In the wake of COVID-19, small business owners have required additional help to stay open and therefore keep their employees. The Employee Retention Tax Credit was among the assistance programs created by the federal government to help small business owners. Learn more about the credit here before discussing savings options with your Encino tax consultants

What Does the Program Do? 

The Employee Retention Tax Credit program functions similarly to payroll tax credits. It is a refundable tax credit designed to help small business owners quite literally retain their employees and therefore keep them on payroll. The credit is “against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees” according to the IRS

What Does Eligibility Involve? 

To be eligible for the credit, both employers and tax-exempt organizations must operate a business during the 2020 calendar year and had either a “significant decline” in gross receipts or dealt with either the partial or complete suspension of their business or trade during the calendar year due to COVID-19-related government orders.  

Is the Credit Based on Employee Numbers?

The credit amount directly relates to the number of employees a small business owner pays. If the owner has 100 or less employees on their payroll, they are eligible for the 50% tax credit whether they are operating or not. If the owner pays 100 or more employees, all wages qualify only if the individual continues paying their team despite employees being unable to do their work because of COVID-19 restrictions.

How Do You Claim the Credit?

To enjoy this tax credit, the small business owner must claim the advance on Form 7200 before paying their team members. They can subsequently settle the credit on Form 941 to recover payroll taxes they had paid from the relevant quarter. By requesting the advance, it becomes easier to pay employees and keep businesses open. 

Are Other Resources Available to SBOs? 

Additional government programs worth looking into include the Paycheck Protection Program, Economic Injury Disaster Loans, and the Payroll Tax Postponement. 

For more small business tax help, contact the Los Angeles tax consultants at Wallace & Associates today.