What are Qualified Wages for the Employee Retention Credit

Determine Qualified Wages for Employee Retention Credit

The Employee Retention Credit

The employee retention credit (included in the CARES Act) is a refundable tax credit from the Internal Revenue Service (IRS) that may be claimed against qualifying payroll taxes in 2020 and 2021. In a nutshell, ERC is a financing program from the government intended to help small and medium-sized business owners navigate the economic effects of the pandemic.

ERC 101: What Are ERC Qualified Wages

Since the pandemic started, many American businesses have reaped the benefits of the Employee Retention Credit. However, many facets of the ERC are challenging to understand, notably how the government defines terminologies like ERC-qualified wages. Thus, to get the most out of the ERC, it is essential to know how everything functions.

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How to Qualify as an Eligible Employer

When employers learn about employee retention credit for the first time, they often put it in the “too good to be true” category. However, in reality, the only catch is that you have to meet the requirements set out by the government to be considered a qualified employer. In a nutshell, your company’s eligibility for the credit will be determined by one of two potential criteria.

First, as stated by the government, your business must have been forced to temporarily or permanently discontinue some or all of its activities. There are, however, several notable deviations from this rule.

For instance, essential service providers weren’t permitted to suspend their operations temporarily and were ineligible for the ERC. Similarly, businesses that could continue operating virtually even when their physical site was temporarily closed couldn’t qualify for the ERC.

As you can see, the first aspect limits the situation, but the second aspect can apply to all kinds of businesses. The criterion that has to be met is for your business to demonstrate that there has been a discernible drop in the total gross revenues it has brought in. In essence, this broadens eligibility for the credit to include any company that suffered severe losses due to the pandemic.

Qualified Wages for Employee Retention Credit

This takes us to the essential question: What are qualified wages? The employee wages are relatively easy to understand—the money given to employees by their employer.

However, the ERC has a different definition for these wages. When we talk about qualified wages, we’re referring to any payments an eligible employer paid to some or all employees during the pandemic.

ERC Qualified Wages: Changes from Year To Year

The fact that the requirements change year to year is another aspect that contributes to the complexity of the employee retention credit. For instance, for 2019 and 2020, if your company employed an average of more than 100 individuals, you may only claim ERC for employees you retained but could not work during the pandemic.

And beginning in 2021, if your company had an average of 500 or more employees, you would be entitled to claim qualifying wages only if you retained them.

What if you run a much smaller business? Well, for the tax years 2019 and 2020, if your company had an average of fewer than 100 employees, you’ll be eligible to claim the credit for all of those employees, regardless of whether or not they were working. And if your company has an average of fewer than 500 employees in 2021, you’ll be eligible to take advantage of the same provision.

ERC-qualified wages are essential to incentivize companies to retain employees on the payroll despite adverse economic conditions. This way, employers can pay their current employees in cash. These amounts may include hourly, salaries, vacation, and other taxable wages. However, qualified wages can only be earned by employees currently working for the employer.

Employee Retention Credit might sometimes be more than a bit confusing. When you start filling out all of the paperwork for ERC, things might become much more complicated than they already were. But imagine for a moment if you had access to an experienced ERTC expert who could direct you through the whole procedure. Well, ERTC Assist is here to help you.

Are You Eligible For ERTC? Check Your Status Now!

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ERTC Assistance Available

FTCO was established to assist small businesses in claiming Employee Retention Tax Credits. Over the years, we’ve helped many companies with the ERTC process and ensured that all our clients get the maximum credit.

So, what’s stopping you? Don’t miss this incredible opportunity, and begin your process today. To check your eligibility, give us a call at 360 641-7709 or fill out the qualification form.

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