Maximizing the Benefits of Small Business Employee Retention Credit
As a small business owner, it’s important to retain top employees for long term success. Employee retention credit is one of the best incentives to advise your business when it comes to retaining existing employees. This temporary tax credit applies to businesses that carry out trade or business during the COVID-19 pandemic and eligible employers can claim this credit for qualified wages up to a maximum. In this post, we’ll take a closer look at how you can maximize the benefits of small business employee retention credit.
Understand the Small Business Employee Retention Credit
Before you can maximize benefits, you need to have a clear understanding of the credit. The Employee Retention Credit is a fully refundable tax credit offered to businesses for expenses involved in retaining and paying their employees during the pandemic. Qualifying employers can claim a refundable tax credit against FICA taxes for the eligible employee retention credit amount.
Determine Eligibility for the Credit
Small businesses with fewer than 500 employees and who had a partial or full shutdown during the pandemic are eligible. Additionally, if your business experienced gross receipts decline of more than 20% in a previous quarter due to COVID-19, you may be eligible for the credit. By understanding these eligibility requirements, you can work towards maximizing the benefits you can claim.
Calculate the Maximum Credit Amount
The maximum credit amount is determined by the eligible wages paid during the period that makes the business eligible for this credit. Employers can claim up to 70% of qualifying wages paid, up to a maximum of $7,000 per employee per quarter. Through effective calculations, you can claim the maximum credit amount and reduce your tax obligation.
Utilize Qualified Wages to Claim Credit
Employers eligible for the retention credit can claim it only on qualified wages. Qualified wages include those paid to employees between March 13, 2020, and December 31, 2021. If you have already claimed a PPP loan, you cannot use the same wages to claim this credit.
Plan to Use the Employee Retention Credit for Maximum Benefit
Small business owners should plan to use the employee retention credit for maximum benefit. By leveraging this tax credit, businesses can improve their cash flow, reduce their tax obligation and retain top talent. It’s important to ensure all necessary criteria is being met to maximize your claimable amount and retain eligible employees.
Conclusion
Employee retention can have a significant impact on the success of a small business. With the employee retention credit, businesses can retain employees and save money on payroll taxes. By understanding the various criteria, calculating the maximum credit amount, using qualified wages, and planning for the use of this credit, small businesses can maximize the benefits of the employee retention credit. Perhaps now is the time to explore whether you are eligible for this credit and find ways to make the most of it.
