If you’re one of the thousands of businesses still waiting to get PPP (Payroll Protection Program) money, or already suspect you’re not going to get it, be sure to take full advantage of the IRS’s Payroll Tax Credit—also known as the Employee Retention Credit.
A lot of people don’t know anything about this yet, but if you are still paying employees, you can save up to $5,000 PER quarter PER employee. That’s up to $20,000/year in savings for each employee.
To be clear, this isn’t upfront funding like the SBA’s PPP or EIDL (Economic Injury Disaster Loan), it’s a credit against your payroll tax. Here we’ll try our best to keep it simple (and we promise to add no new acronyms!):
Who Is Eligible
You are eligible if all of these statements fit your business:
- You are a for-profit business or nonprofit (no self-employed individuals).
- Your business was negatively impacted by COVID-19 between March 12, 2020 and January 1, 2021—either because a government authority required you to partially or completely shut down during the pandemic OR your revenue was down by at least 50% in an affected quarter, compared to the same quarter last year.
- You have not accepted PPP money. Your business, however, may use the Payroll Tax Credit along with EIDL funds or with tax credits you claim under the Families First Coronavirus Response Act (which includes Emergency Family Medical Leave provisions), just not for the same wages.
How Much You Can Save
Your savings can be as much as $20,000 a year per employee, applied against your payroll taxes. Exactly how much depends on each employee’s salary level. You can receive credit for 50% of each employee’s wages up to $10,000 each quarter (including healthcare premiums) through December 31, 2020.
For example, for employees making at least $40,000 a year, you can save $20,000 in payroll taxes per employee—basically $5,000 per employee per quarter. You’ll need to calculate the credit you can get for employees with lower salaries separately.
The one caveat to the calculation is the number of employees you have. In 2019, if you had:
- More than 100 full-time employees, you can include only full-time workers in your calculation.
- Less than 100 full-time employees, you can include both full-time and part-time staff.
Regardless of how many employees you have, the savings can be substantial.
Lower Your Tax Deposits Plus Qualify for Refunds
If you think that you qualify, the IRS will allow you to hold back on your tax deposits for the affected quarter, instead of waiting for them to send you the cash back after you file your 941. This gives you more cash on hand for other needs.
You can also get refunds if the calculated Payroll Tax Credit is more than the amount you owe for social security taxes in a given quarter. Whatever part of the credit you don’t need, the IRS will consider an overpayment of payroll taxes and return it to you as cash.
How Do I Take Advantage of This?
You’ll take it against the employer’s share of FICA you owed during the eligible quarter when you file your quarterly Federal 941 payroll tax returns.
For more info, talk to your accountant or tax advisor, or check out Payroll Tax Credit on the IRS site.