Maximizing Tax Savings: Strategies for Utilizing ERC
As a business owner, maximizing tax savings is always a top priority. One strategy that can help you save money on taxes is utilizing the Employee Retention Credit (ERC). This credit was introduced as part of the CARES Act in 2020 and has since been extended and expanded under the Consolidated Appropriations Act of 2021.
What is the Employee Retention Credit?
The ERC is a refundable tax credit that can be claimed by eligible employers who have experienced a significant decline in gross receipts or were fully or partially suspended due to COVID-19. The credit is equal to 50% of qualified wages paid to employees, up to a maximum of $10,000 per employee, for the period from March 13, 2020, to December 31, 2021.
Eligible employers include those who:
- Had operations fully or partially suspended due to orders from a governmental authority due to COVID-19, or
- Experienced a significant decline in gross receipts during the calendar quarter when compared to the same quarter in 2019.
The decline in gross receipts must be at least:
- 50% for 2020
- 20% for 2021
Maximizing Your Tax Savings
1. Claim the Credit for 2020 and 2021
If you are eligible, make sure to claim the ERC for both 2020 and 2021. The credit can be claimed on your quarterly employment tax returns, and any excess credit can be refunded to you.
2. Review Your Qualified Wages
Make sure you are taking advantage of all qualified wages when calculating your credit. Qualified wages include:
- Health plan costs
- Retirement plan contributions
- State and local taxes on employee compensation</li
3. Consider Amending Prior Tax Returns
If you did not claim the ERC for 2020, consider amending your prior tax returns to claim the credit. This can result in a significant tax savings for your business.
4. Consult with a Tax Professional
The rules and regulations surrounding the ERC can be complex. It is important to consult with a tax professional to ensure you are maximizing your tax savings and complying with all requirements.
Conclusion
The Employee Retention Credit can be a valuable tool for businesses looking to save money on taxes. By understanding the eligibility requirements and following these strategies, you can maximize your tax savings and keep more money in your pocket.
Think that your company is ready to file ERC? Not sure? Learn more here.