In response to the coronavirus pandemic, the Federal government has put in place many policies to encourage employers to keep employees on the payroll while the employer may have reduced revenue. This reduction in revenue may have been caused by a decrease in the number of customers (for example, restaurants), or it may be because the employer was shut down due to a state’s stay-at-home order. One such program, the Paycheck Protection Program, has been the subject of many headlines, mostly due to the difficulty that many small businesses faced in applying for the forgivable loans that were the centerpiece of the program. But a different program, the Employee Retention Tax Credit, has received much less press, even though it may actually be easier for you as a small business proprietor to take advantage of. If you are an employer in Denton County specifically and need tax advice, Master Plan Tax Services can advise you on all of the details of this credit and more.
The Employee Retention Tax Credit is a broad, refundable tax credit that encourages employers to keep employees on payroll by giving the employer a tax credit of 50% of wages, up to $10,000, paid while the employer has suffered a decline in revenue of 50% or more. The credit is refundable, meaning that it can reduce a company’s tax burden below zero (the company would then get a refund). The credit is open to all businesses, regardless of size, if your business meets one of the following conditions:
- Your business is fully or partially suspended by a government order, or
- Your gross receipts are below 50% of your receipts from the same quarter in 2019. You will qualify for the credit until your receipts rise to 80% of their 2019 level.
If you employ less than 100 people in Denton County, your credit is based on the wages paid to all of your employees, whether or not they were working. On the other hand, if you employ more than 100 people, you may only claim the credit for employees that you kept on payroll even though they were not working; you may not take the credit for any employees that were actually working. In either case, “wages” includes both the cash that you pay your employees and a portion of any health insurance that you provide for them.
While the Paycheck Protection Program offers forgivable loans if the money is used on specific items, some businesses have expressed concern about how easy the loans will be to get forgiven, and others have not wanted to take on more debt during a recession. The Employee Retention Tax Credit, on the other hand, does not involve debt of any kind; it is simply a reduction in your business’s tax burden. Call Master Plan Tax Services today to talk about the Employee Retention Tax Credit and for all of your other needs in tax services.