If you haven’t heard, Congress has just passed the Capps Employee Retention Credit Act. Although it was passed a week ago, the credit will not take effect until 2013. The credit is a credit-of-up-to $2,000 for employers who purchase credit insurance for employees who leave for a new job or other extenuating circumstance, such as child-rearing or a marriage or divorce. The credit applies to employees with at least two of the following four situations: New job. New employer. College or graduate studies. Marriage, divorce, disability or other extenuating circumstance.
More and more workers are relying on paycheck protection plans to guard their wages from the predatory lending tactics of payday lenders. However, many people miss out on their opportunity to enroll in these programs, either because they didn’t realize it was available or because they were too embarrassed to ask about it. Luckily, there’s another way employers can help their employees avoid predatory lending – the employee retention credit, which works as a tax credit in reverse.
Who can get the credit?
Businesses of all sizes that did not receive a PPP loan may be eligible for the Employee Retention Credit, which is designed to help businesses keep their workers on the payroll. To be eligible, businesses must have experienced a decline in gross receipts of at least 50% when compared to the same quarter in the prior year. The credit is available for wages paid from March 13, 2020 through December 31, 2020.
To be eligible for the credit, your business must have been operational on March 1, 2020, and either had its operations fully or partially suspended due to a government order related to COVID-19, or experienced a significant decline in gross receipts. If you’re not sure whether your business meets the criteria, the IRS has provided a safe harbor: any employer that can show that its gross receipts for any quarter of 2020 were less than 50 percent of its gross receipts for the same quarter in 2019 will be considered to have met the significant decline test.
The credit is 50% of up to $10,000 in wages paid by an eligible employer per employee, and is available for payroll periods beginning after March 12, 2020, and before January 1, 2021. To be eligible, your business must have either shut down operations due to a government order related to COVID-19 or have experienced a significant decline in gross receipts. If you’re not sure whether your business meets the criteria for a significant decline in gross receipts, the IRS has provided guidance.
When Your Business is Eligible for the Credit:
If your business is eligible for the credit, you can claim it on your quarterly employment tax return or Form 941. You can also elect to receive advance payments of the credit by reducing your deposit of employment taxes. The W-2 is one of the most important documents you’ll need when filing your taxes. It tells the IRS how much money you made and how much taxes were withheld from your paycheck.
If you don’t have your W-2, you can’t file your taxes. Yes, you can. If you have more than one business, you can file for the credit for each one. And, if you make multiple new hires within a single year, you can claim the credit for each of them. So, if you’re looking to save on taxes and grow your business, the employee retention credit is definitely worth considering.
If your business is eligible for the employee retention credit, you can claim it on your quarterly Form 941 payroll tax return. To claim the credit, you will need to complete and attach Schedule B to your return. Make sure to keep good records of your eligible wages and the number of employees you have retained, as you will need to provide this information to the IRS.
If you have 50 or fewer employees, you may be able to take advantage of the credit by filing Form 5500 with the IRS. This form is used to report information about your employee benefits plans, and can be filed electronically. To be eligible for the credit, you must have been in business on March 12, 2020, and have experienced a decrease in gross receipts of 50% or more when compared to the same quarter in 2019. If your business was not in operation in 2019, you can compare your 2020 gross receipts to your 2019 average quarterly receipts.
You must also have paid salaries and wages to your employees during the period of decreased gross receipts. If your business was operational on February 15, 2020, and you experienced a decline in gross receipts of more than 50% when compared to the same quarter in 2019, you may be eligible for the credit. The credit is available for eligible employers who retain employees during the COVID-19 crisis and pay them salary or wages.
Credit Amount:
The credit is equal to 50% of the qualified wages (including health insurance costs) that an eligible employer pays to its employees. Wages taken into account for purposes of the credit are capped at $10,000 per employee per year. Only wages paid after March 12, 2020 and before January 1, 2021 are taken into account. If your business didn’t qualify for a Paycheck Protection Program (PPP) loan or you missed the application deadline,
The Employee Retention Credit (ERC) might be a better fit:
The Employee Retention Credit, combined with the Move Up Employee Tax Credit, may provide you with an extra $1,000 in employee retention bonuses. Find out how. There is one catch: You must be offering full-year employment. Employee retention bonuses require a commitment to a year of full-time employment. Also, you can’t use the credit for retention bonuses to top up the salary of a new employee.
In fact, if you give your new employee a cash bonus, you must also give the employee the credit, so there is no bonus for the employee’s first year’s salary. If you are a mid-sized company and your turnover is more than 15% (equal to the average number of employees you hire in any six-month period), then you may qualify for the credit. To qualify, your full-time employee’s new job must have a base salary in the $50,000 to $75,000 range.
If the employee works for you for three months, you must award the credit as a cash bonus equal to one month’s salary. The credit can also be applied to credit for hiring additional employees, which is defined as hiring more employees than you hire in any six-month period. All of these benefits are good news for employers who are interested in hiring employees who stay, and they can provide an extra incentive for employees who stay.
Keep in mind that the credit can only be used for hiring employees who stay after completing a full-time employment period. It is not refundable, so you must pay it, but it may still be worth it to you.
This information has been provided by Armonk, N.Y.-based American Credit Offerings (ACO), a direct marketer of credit products. Your thoughts: What’s your opinion of the credit? What’s an effective employee retention incentive that’s good for both employee and employer? For more information on employee retention programs, contact the company that offers it or consult a human resources professional for suggestions.
Missed the Helping Hands Employee Turnover Credit Promotion? Do It Again With That Employer-Issued Credit. If you have questions about your employment and credit rights, contact any of these attorneys, and you will gain access to their expertise. American Credit Offerings (ACO), a direct marketer of credit insurance products, provides employee retention credit offerings and compliance with all U.S. employment laws, including the Employee Credit Protection Act.
You must comply with all applicable employment laws and regulations before you hire your employee. If you hire an employee who works for you for fewer than 50 hours, ACO does not offer the employee credit, but it can provide an employee credit-access credit. The employee may use credit for a credit-access acquisition if the credit agency is not affiliated with or controlled by the employee’s employer.
American Credit Offerings (ACO), a direct marketer of credit insurance products, provides employee retention credit offerings and compliance with all U.S. employment laws, including the Employee Credit Protection Act. You must comply with all applicable employment laws and regulations before you hire your employee. If you hire an employee who works for you for fewer than 50 hours, ACO does not offer the employee credit, but it can provide an employee credit-access credit. The employee may use credit for a credit-access acquisition if the credit agency is not affiliated with or controlled by the employee’s employer.
Eligibility for the employees:
Employees must pass a credit exam to maintain a credit marketable credit history. Employees with creditworthy accounts are able to get credit-access credit, but they cannot get more credit than the credit limits set by the issuer. If the employee is currently a current credit card borrower, they may not receive additional credit from ACO. They can only use their credit accounts for credit-access credit, and they may not get credit from another credit agency. ACO does not provide credit protection for employees who do not use credit products, or if the credit protection offered by the employee is limited or their credit is not of sufficient quality. Employees cannot use credit to get credit themselves, or if the credit protection offered by the employee is limited or their credit is not of sufficient quality. No credit is required for the officer to verify an employee’s employment. You must fill out an application and provide employee authorization before your employee is approved for credit. The cost of retention credits can vary depending on the size of your business and the number of employees you have. However, retention credits are typically a percentage of an employee’s salary, so the cost can add up quickly.
If you do not provide an employee with appropriate authorization, the officer will send you a request letter informing you that officer has deactivated your employee’s credit. ACO and the credit products provided by the officer are intended for the credit protection of the employer and its employees. If you require credit for your employee’s employment, you must pay a retention fee equal to the credit costs.
ACO may reduce the retention fee if the credit coverage offered by the officer is more favorable than the credit costs on the credit protection offered by the issuer. The retention fee for credit protection offered by ACO is determined by the risk of the issuer or credit guarantor to sustain the credit benefits. The credit protection offered by the officer is not intended for employees who are dissatisfied with their employment. Employees must pass a credit exam to maintain a credit marketable credit history.
Importance of Employee Retention for a Company Owner:
When you hire someone and they stay with your company long enough to be eligible to receive retention credits, it can feel like you’re giving them money out of the goodness of your heart – but don’t fall into that trap! If you’re considering offering retention credits as an employee benefit, you should know exactly what this benefit entails, how it affects your business, and whether or not you should actually pursue it.
This article breaks down both the pros and cons of employee retention credit so that you can make an informed decision about how to best compensate your employees. On the one hand, retention credits can be a great way to keep your employees happy and reduce turnover. On the other hand, they can be expensive, and if not used correctly, can actually create more turnover.