The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in March 2020 as part of the US government’s response to the economic repercussions of the COVID-19 pandemic. A provision in that bill known as the Employee Retention Credit may reduce the tax liability of qualifying employers. The good news is that the American Rescue Plan Act of March 2021amended the CARES act to make the tax credit even more generous.
What Is It?
The Employee Retention Credit is a tax credit intended to relieve some of the tax burdens of employers that had decreased revenue or suspended operations due to COVID-19 in 2020 and 2021. The credit is refundable if specific criteria are met, meaning the funds may be returned to the taxpayer as if they overpaid their taxes. The credit could be as much as $14,000 per employee in 2021. This can significantly reduce taxes for a company and should be scrutinized by any business affected by the COVID-19 shutdown.
Who Is Affected?
Concerning the Employee Retention Credit, a variety of criteria determine an employer’s eligibility as well as the amount of the credit to be claimed:
- PPP loan recipients can use the employee retention credit for wages not paid with forgiven PPP loan proceeds.
- Did the business pay employee wages between the qualifying dates?
- Qualified Wages may include the cost of health care but not wages paid for Emergency Paid Sick or Family Medical Leave.
- Was the business affected by state or local government orders such as limits on operating hours?
- What qualifies as a significant decline in revenue for the company?
These are just some factors for consideration regarding the Employee Retention Credit. In addition, the IRS website can be a useful tool for researching the topic.
What To Do
A trusted advisor or guide is invaluable in navigating the complicated world of taxes. Having people to help plan and review the results at the end of the year is equally important.
Fortunately, there are professionals who enjoy learning and knowing all the ins and outs of the tax code. The tax specialists at Myrick CPA stay up to date on all the current tax laws and strive to help our clients plan and meet their financial goals. We offer a range of services to businesses, including advisory and planning services and representatives to deal with the IRS. Contact us to schedule an appointment to discuss how we may help you navigate the complexities of your taxes.