As a small business owner, you are probably searching for some much-needed guidance around tax credits during this constant chaos and unknown. From the CARES Act of 2020 to the American Rescue Plan Act of 202, there can be a lack of clarity around eligibility and qualification requirements. Fear not, The FitBiz CPA has you covered for all things tax credits, tax reduction strategies, and small business bookkeeping needs. My main goal in writing this article is to inform you not only about the Employee Retention Tax Credit but encourage you to sit down with your CPA/Tax Professional and discuss how this can lead to massive cash savings. Let’s get something very basic out the way first, so who’s truly eligible to claim this credit?
- A small business that was either ordered to shut down during lockdowns or somebody who faced significant reductions in revenues is eligible.
Now you might be wondering that even though you were forced to shut down, you were able to take out a PPP (Paycheck Protection Program) loan to cover your overheads and salaries. Guess what? The IRS has expanded eligibility to all small business owners, regardless of them taking the PPP or any other SBA loan/grant. I know this sounds too good to be true but it is, obviously, you’re not going to be able to claim credit against tips or illegal forms of income.
To meet the qualification requirements under the ERTC you need to show qualified wages, essentially any wages subject to FICA (Social Security and Medicare) taxes are eligible! Above all, it is critical that you sit down with your strategic accountant and discuss with them any repercussions of employee salaries that might already be forgiven under the PPP Loan.
While this credit does seem very attractive to small business owners, there are some additional requirements you need to keep in consideration.
- Your employees must meet the definition of full-time or 30 hours per week.
- The American Rescue Act (2021) now allows for a tax credit of up to 70% of qualified employee wages with $10,000 per employee per quarter for all of 2021.
- Wages must be paid after March 12th, 2020, and up to December 31st, 2021
- The deadline for claiming the Employee Retention Tax Credit in 2021 is December 31st (HURRY UP & GET IN TOUCH WITH YOUR CPA)
- New Startup businesses may use all of their qualified wages for the ERTC
Keeping all these things in mind it is critical that you retain all of your payroll records, the last thing you want to deal with is the IRS knocking on your door asking you to refund all of your tax credits plus penalties. Not only can it become an exuberantly painful experience for the business owner but the tax professional trying to help solve your problems as well. For example, let us say that you have 6 employees who make about $24,000 dollars each annually and you paid around $36,000 in salaries for Q4, you could be eligible for a tax credit of up to $25,200 dollars!
Want to find out what forms you have to fill out and how you can claim more tax savings to grow your business and be more financially secure? Reach out to us here at the FitBiz CPA, our team is more than happy to help solve your financial pain points and make 2022 an even stronger year!