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Monday, January 4, 2021

A Small Business Owner's Guide to Employee Retention Credit

As you look around your business establishment, you can’t help but to shake your head in frustration. You’re having a hard time figuring out when to bring your employees back. And how you’ll pay for them.

Sadly, the global COVID-19 pandemic has wreaked havoc on many small businesses, yours notwithstanding. The good news? The CARES Act offers an employee retention credit designed to help you to weather the pandemic story.

Here’s a rundown on everything you need to know about the employee retention credit.

Let’s jump in!

What Exactly is the Employee Retention Credit?

The employee retention credit is a credit that you can claim against half of the wages you pay each quarter, up to a total of $10,000 paid to each employee each year. Thus, the largest credit you can claim is $5,000 per worker in one year.

The credit applies to any wages paid starting March 13 and ending Dec. 21 of 2020. If you use a payroll company, they can help you to make sure that you take advantage of this credit if you qualify for it.

How Do You Qualify for the Employee Retention Credit?

The majority of employers may take advantage of the credit as long as they didn’t receive a Paycheck Protection Program loan. Government employers, self-employed individuals, and household employers don’t qualify for the credit.

You can receive the credit if you fall under one of two categories. The first category is for businesses that were partially or fully suspended during the pandemic. Alternatively, these businesses may have had to reduce their hours as a result of government orders.

Note that for a company in this category, the credit will apply to the particular part of the quarter that a business was suspended, rather than to the full quarter.

The second category is for employers that have experienced significant declines in their gross receipts. If your gross receipts in a quarter of 2020 were less than 50% of your receipts in the same quarter of 2019, then you would qualify for the credit.

Note, though, that you don’t qualify for the credit if your receipts the following quarter surpassed 80% of your receipts from that quarter of 2019.

So, what if you happen to be a brand-new 2020 business? In this case, the Internal Revenue Service will use your very first quarter in business, rather than a 2019 quarter, to determine how your gross receipts have been impacted by the pandemic.

How We Can Help

In addition to explaining how the employee retention credit works, we offer a wide range of tips related to business and investment.

For instance, through our site, you can learn about the top tips for engaging in high-level financial planning. We also offer advice related to managing money, including the benefits of using credit unions.

Our site furthermore outlines the top reasons for hiring a reputable tax preparer in 2021.

Take a peek at our site to learn more about how to make more money -- and save money -- in the year ahead.

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