September 24, 2020
The COVID-19 pandemic caught many businesses by complete surprise when stay at home orders and forced business closures were announced. Main street businesses and larger companies were required to reduce operations, modify service offerings, or completely close. The aftershock of these changes resulted in some organizations going out of business while others had to drastically cut expenses, including employees, to maintain financial solvency. Six months later it appears the situation is turning around. In fact, it was recently announced that in August there were $642M in new investments across the state including the creation of 4,036 new jobs. As the shift to recovery continues, many Atlanta businesses are looking for ways to bolster working capital to meet expenses and make new strategic investments. The good news is there are federal tax credits that can be leveraged to uncover additional savings, including the Employee Retention Credit. It is a refundable tax credit available to qualifying businesses that retain employees despite a decline in business due to COVID-19. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
Since the credit is designed to help businesses that were impacted by the COVID-19 pandemic there are certain eligibility criteria that must be met. Business and tax-exempt organizations qualify for the credit if they experienced one of the following:
Businesses that meet these criteria are eligible to receive a credit of up to $5,000 per employee. The credit applies to qualified wages paid during any quarter in which operations were suspended or when a decline was experienced.
The definition of qualified wages varies based on the number of employees. If a company averaged more than 100 full-time employees during 2019, then qualified wages are any wages including certain health care costs (up to $10,000 per employee) only for those not providing services due to the hardship. For those with an average of less than 100 full-time employees in 2019, qualified wages are wages including healthcare costs (up to $10,000 per employee) regardless of whether an employee was providing services or not, due to the hardship.
There are limitations to the amount of qualifying wages when an employer leverages other tax credit incentives. Any wages used to receive Paid Sick or Family Leave Credit are ineligible. In addition, wages counted for the Employee Retention Credit cannot also be counted for the Paid Sick and Family Leave Credit. Employees counted as part of a Work Opportunity Tax Credit cannot be counted for this credit. Finally, any employer which received a Paycheck Protection Program loan is disqualified from participation.
The credit is claimed by making a reduction in the amount of taxes paid on the employer’s quarterly tax returns (IRS Form 941) starting with Q2 2020. It is taken against the employer’s share of Social Security taxes and is refundable when the credit exceeds taxes due.
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The Employee Retention Tax Credit offers qualifying Atlanta companies an opportunity to realize immediate savings. Since it is claimed on a quarterly basis, businesses need to carefully review their situation to determine if they qualify on an ongoing basis. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.