Is your childcare business eligible to receive the Employee Retention Credit, and if so, how can you claim your refund? In the following guide, we cover the essential information you need to know about the Employee Retention Credit, including what it is, what provisions have been modified and expanded in recent months, who qualifies for a refund, and how you can claim your credit. Read on to find out more.
What Is the Employee Retention Credit?
The Employee Retention Credit (ERC) was set forth by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March 2020 to encourage businesses to keep their employees on payroll during the COVID-19 pandemic. Since its creation, the Employee Retention Credit has been modified and expanded by the Consolidated Appropriations Act at the end of December 2020 and again by the American Rescue Plan Act signed into law by President Biden on March 11, 2021. The ERC is a tax credit offered to eligible businesses to offset the costs of qualified wages, including some health insurance costs, paid out to employees.
The original CARES Act made provisions for eligible employers, including those businesses who applied for a loan through the Paycheck Protection Program (PPP), to claim the tax credit against 50 percent of qualified employee wages paid, up to $10,000 per employee for wages paid out between March 2020 and the end of the 2020 calendar year.
The Consolidated Appropriations Act extended the ERC for wages paid through the first two quarters of 2021 and increased the maximum ERC benefit amount to $7,000 per employee (an increase to 70 percent of $10,000 in qualified wages), per quarter.
Finally, the American Rescue Plan Act of 2021 extended the ERC program through December 31, 2021, providing for a maximum ERC benefit of $28,000 per employee, or $7,000 per quarter, in 2021. It also clarified that PPP loan recipients do indeed qualify for the Employee Retention Credit.
Who Qualifies for the Employee Retention Credit?
What businesses qualify for the Employee Retention Credit? Here are the most up-to-date provisions outlined by the IRS:
- Businesses of all sizes are eligible to receive the ERC, although small businesses and large businesses are subject to different guidelines.
- Businesses with 100 or fewer full-time employees may consider all employee wages eligible for the credit, Irregardless of whether the business was open or forced to close due to government shutdown orders.
- Businesses with more than 100 full-time employees may only consider the employee wages paid out while business operations were interrupted by government shutdown orders and other pandemic-related restrictions as eligible for the credit.
- Both private-sector businesses and tax-exempt organizations are eligible.
- The business or organization must have experienced a full or partial shutdown of operations as a direct result of government mandates pertaining to the pandemic during 2020 or 2021.
- The business or organization must have experienced at least a 50 percent decline in gross receipts during a quarter in 2020 or 2021 as compared with the same quarter in 2019.
- The business is considered a “recovery startup business” that opened on or after February 15, 2020, and whose annual gross receipts do not exceed $1 million.
- Businesses and organizations who qualify can submit retroactive claims for past quarters in 2020 or 2021, but they should be advised that their claims may be significantly delayed due to the current backlog in claims processing through the IRS.
How to Claim the Employee Retention Credit
Eligible businesses may claim the Employee Retention Credit by filing Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund for the applicable quarters in which the wages for which they want to receive the credit were paid.
As a childcare business owner, you want to recoup as many costs related to the COVID-19 pandemic as possible to help your business recover and get back on your feet financially. Even helpful resources like the Employee Retention Credit and the associated paperwork can leave you feeling confused and overwhelmed. If that’s the case, there is no need to stress! The experts at Honest Buck Accounting are here to help. Schedule a call with us today and learn how our team of friendly, professional accountants can help you file your claim for the Employee Retention Credit and maximize government relief benefits for your childcare business.