There are so many different types of loans being given out as a result of Coronavirus. We’ve discussed a number of them in posts already, but there is one avenue we haven’t looked too deeply into. An Employee Retention tax credit from the IRS to help businesses affected by Coronavirus might be a massive step forward for small businesses looking to pay their employees. It potentially could offer a larger amount of money, but it also might require far more work on everyone’s ends. We go through the credit and its benefits below.
Feeling like your business isn’t going the right way? ProStrategix knows how to help. Read some of our other articles below, or feel free to connect with us and get a complimentary thirty-minute consulting session.
What Is the Employee Retention Tax Credit and How Does It Involve Coronavirus?
This is the million-dollar question (somewhat literally). This is a “refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021” according to the IRS. You can get this credit immediately by reducing employee tax deposits that you are usually required to make. You also might be able to get an advanced payment from the IRS.
You can reduce upcoming deposits and request an advance up to $10,000 per employee between March 12th of this year and the end of the year. It essentially works as a means of helping to reduce the impact that Coronavirus has put on your budget by allowing you a tax credit in order to hold onto your employees.
How to Sign Up
I’m just going to quote straight from the IRS once again:
“In order to claim the new Employee Retention Credit, eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns, which will be Form 941 for most employers, beginning with the second quarter. The credit is taken against the employer’s share of social security tax but the excess is refundable under normal procedures.”
You can request and advance on this credit by submitting Form 7200 to the IRS. There are some more specific rules about what kinds of businesses it applies to and how/why, but these are the most important details that you will need to know before you even think about the next step.
What Makes This Better or Worse Than a Traditional Loan?
This tax credit is also part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act. Unlike the Paycheck Protection Program (PPP), the Employee Retention credit is about incentivizing businesses to keep paying their employees. If you’ve received a loan from the PPP, you will have to pay it back and will be unable to receive this credit. Also key to note is that your business must have suspended or limited operations in order to receive this credit, according to the US Chamber of Commerce.
This tax credit might be a godsend for people who are still struggling to pay wages and raise funds amid the Coronavirus. If this means you, it’s not too late to get help. If this tax credit will work for you, ask us for help on how to apply now!