New COVID Tax Credits for Employers Who Kept Staff on Payroll
If you retained your cleaning or security employees during the pandemic, you may be eligible to file for the Employee Retention Credit.
When the pandemic emptied office buildings and workplaces and sent people to work from home, it took much of the need for commercial cleaning and security services with it. Even with the downturn in business, many contracting companies kept their employees on staff. If you’re one of them – there’s good news. You may be able to recoup some of your payroll expenses to help offset some of the impact the pandemic had on your bottom line. If your business qualifies for the federal Employee Retention Credit, you can take a tax credit of up to $5,000 for each employee that received a qualified wage from March 13 through December 31, 2020, and up to $7,000 per employee per quarter from January 1 through June 30, 2021.
Better still, based on changes made in December 2020, you can qualify for the tax credit even if you also took advantage of another incentive such as the Paycheck Protection Program (PPP). So, if you didn’t receive the Employee Retention Credit for 2020, you can go back and apply for it in 2021.
What the Employee Retention Credit is and what is does.
The Employee Retention Credit is impacted by two acts. Initially, it was passed as part of the CARES Act in March 2020, providing tax credits up to $5,000 per qualifying employee to encourage businesses to keep staff employed during the pandemic. The Consolidated Appropriations Act passed in December 2020, extended the Employee Retention Credit through June 30, 2021 and increased the tax credit to up to $7,000 per qualifying employee per quarter. It also removed the PPP restriction.
The credit is taken from your quarterly payroll tax obligation against the employee portion of FICA. What’s more, if your tax credit is greater than your tax bill, the Internal Revenue Service will refund you the difference.
Does your business qualify for the Employee Retention Credit?
This is the big question. Because the Employee Retention Credit is offered through two different acts, it covers two specific time frames: March 13 through December 31, 2020 and January 1 through June 30, 2021. Each time frame has slightly different eligibility requirements.
- Qualifying Business:
- If your operations were fully or partially suspended as the result of government orders, you qualify. OR
- For 2020, if your business showed a decline in gross receipts of 50% or greater from the same quarter one year earlier, you qualify.
- For 2021, if your gross receipts declined by 20% or greater from the same quarter in 2019, you qualify.
- Qualifying Wages:
- For 2020 – If you averaged fewer than or equal to 100 full-time employees in 2019, all wages qualify. If you averaged more than 100 full-time employees in 2019, only wages for employees not providing services qualify.
- For 2021 – If you averaged fewer than or equal to 500 full-time employees in 2019, all wages qualify. If you averaged greater than 500 full-time employees in 2019, only the wages for employees not providing services qualify.
- Tax Credit Amounts:
- For 2020 – Employers can claim a tax credit on up to 50% of the first $10,000 in total qualified wages paid, including qualified health plan expenses, up to $5,000 per employee.
- For 2021 – Employers can claim a tax credit up to 70% of the first $10,000 in total qualified wages paid and qualified health plan expenses per quarter, up to $7,000 per employee per each quarter.
Get ready to claim your tax credits.
It will come as no surprise that you’ll need to use specific federal tax forms and procedures to claim your Employee Retention Credit. If you use an ERP solution to manage your payroll, your software should be able to simplify the filing process by determining qualifying employees and wages, and simplifying the necessary paperwork.
It can also help you maximize your tax credit by calculating qualifying employees, wages and healthcare costs for both 2020 and 2021. And, when the final Form 941 is released for 2021, your ERP can help you to report your total qualified wages and health insurance costs on the quarterly employment tax return to make filing and claiming your Employee Retention Credit tax credit easier.
TEAM Software is dedicated to ensuring our software solutions meet the ever-changing needs of our customers. While we’re committed to keeping you informed, it’s important to do your own research and consult your own legal and tax advisors with specific questions or concerns. To learn more about tax credits your cleaning or security company may qualify for, read our recent blog post on Work Opportunity Tax Credits.