Employee Retention Credits

Employee Retention Credits: Tax Credits Helping Pay Employees During COVID19 Layoffs

Paycheck Protection Program Loans Are Not the Only Relief Available for Employers to Pay Employees During Coronavirus Downturns.

It is almost July. By this point, the reality cannot be denied. Even with businesses slowly reopening, Coronavirus has taken a toll on employers and many. Truthfully, many do not need a full workforce due to the reduced hours and capacity many businesses must maintain.

Life is not back to normal, and businesses are still struggling to make ends meet. While the first round of the Paycheck Protection Program went quickly, money is still available under the second round. Under the provisions for the second round, the SBA is scrutinizing every application to ensure the recipients are truly a small business, as opposed to large corporations looking to get a handout.

Yet, as we learned in round one, this money is not going to last forever. Furthermore, it must be repaid if it is not used as per directed under the strict guidelines. The terms may seem intimidating, preventing some employers from applying.

The good news is this is not the only option for employers to receive help in paying employee benefits or salaries. Employee Retention Credits are another option that can help employers pay their employees without the stress, confusion, and potential denial associated with the PPP Loan.

What Is Employee Retention Credit?

The Employee Retention Credit is a federal tax credit designed to help employers retain employees in the wake of the COVID19 Pandemic. Many employers are forced to cut employee hours or layoff employees indefinitely due to a large reduction in revenue or forced government shutdowns.

The credit is a 100% refundable tax credit that helps pay employees during a COVID19 business shutdown. 50% compensation up to $10,000 per employee, including benefit premiums, paid to employees between March 12, 2020, and January 1, 2021, is credited towards the employer’s annual payroll taxes. An employer can receive a credit of up to $5,000 per employee to keep the person working instead of laying the employee off.

Employers may receive an advance on the credit immediately instead of waiting until the end of the tax year. The immediate access to the funds ensures employers can use the credits to pay employees and keep business open by simply filling out the advanced credit request form.

Who Qualifies for the Tax Credit?

The Employee Retention Tax Credit is available to private employers and non-profits who have been directly affected by COVID19 closures and city-wide shutdowns. Government employers and self-employed individuals are not eligible for the tax credit.

Eligible recipients must fall into one of two categories:

  1. The business was forced to close, reduce its staff and hours, or otherwise alter their normal business practices as a result of government-mandated COVID19 procedures; or
  2. The business suffered a “significant” decline in accounts payable receipts from the same quarter in 2019.

Furthermore, any employer in receipt of a PPP loan is not eligible to receive the tax credit.

How Do Employers Apply for the Tax Credit?

Unlike the PPP Loan, there is no application to receive the credit. When an employer files Form 941 for quarterly taxes, they include the compensation, including benefits, paid to each employee. The credit is part of the social security deductions. However, if you qualify for a refund, any excess money is 100% refundable, unlike traditional tax credits.

There are no additional applications unless you wish to request an advance of the credit to have liquid assets to pay employees.

Can Employers Report FFCRA Recipient Payments for Employee Retention Tax Credits?

The Employee Retention Tax Credit provisions do not allow employers to collect double tax credits on a single employee. Employers receive a tax credit for any employee receiving FFCRA pay under the allotted provisions. These payments cannot also be reported under the Employee Retention Tax Credit.

Should Employers Still Apply for the PPP Loan?

The PPP Loan has the potential to offer much more money to pay employees for the foreseeable future. Since money is still available for qualified small businesses, it is a great idea to continue the application process and attempt to receive the loan.

However, the process can take some time for approval, and some employers do not have time on their side. Therefore, if you have not received PPP funds to date, you can use the Employer Retention Tax Credit while waiting for loan funding approval.

To learn more about the Employer Retention Tax Credit and how it can help your business during these trying times, contact the experts at Workplace HCM at 856.334.9711. One of our experienced HR professionals can help answer your questions regarding your options.

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