Simple Steps to Calculate Your Employee Retention Tax Credit
Are you looking for a way to reduce your business's tax burden and maximize your savings? One strategy you may have overlooked is the Employee Retention Tax Credit. This credit is available to employers who retain their employees and pay wages during the COVID-19 pandemic. In this blog post, we'll explain how you can calculate your Employee Retention Tax Credit and take advantage of this valuable tax incentive. Keep reading to learn more!
Identify Your Eligibility Criteria
To qualify for the employee retention tax credit, you must meet certain eligibility criteria. The credit is available to businesses with at least 50 employees who have been with the company for at least two years. You can also qualify if your company has experienced a significant loss of jobs in the past two years.
To estimate the amount of tax credit you can receive, you first need to calculate your company's employee retention tax liability. This is simply the total amount of taxes that your company would owe if all of your employees left within the next two years.
Next, you need to subtract your company's employee retention tax liability from your total gross receipts for the year. This will give you your taxable employee retention bonus credit.
Finally, you need to subtract any taxes that you owe on this bonus credit from your total tax liability for the year. This will give you your actual employee retention tax credit.
Estimate the Amount of Tax Credit You Can Receive
Your eligibility for the employee retention tax credit depends on your company's business structure and the number of employees you have. Generally, a company qualifies for the credit if it has at least 50 full-time employees who work in the United States during a taxable year. However, some companies may be exempt from this requirement if they meet certain other criteria, such as having fewer than 500 employees or being in a specialty industry.
To estimate your tax credit, start by calculating your payroll taxes for each employee in 2018. This includes all federal income taxes (including social security and Medicare) and state income taxes that are applicable to your workforce. Next, subtract your total payroll taxes from each employee's gross wages. Qualified wages include only those wages that are paid in cash or cash equivalent – such as commissions or bonuses – and does not include any tips received by your employees. Finally, multiply this amount by 0.35 to determine the portion of an employee's wage that is counted as qualified wages for purposes of the retention tax credit calculation. Remember to adjust Gross Receipts when necessary so that they reflect only qualified wages paid to U.S.-based employees during 2018.*
If you're eligible and wish to claim the credit, you'll need to file IRS Form 8829 with your annual 1099-MISC report no later than April 15th of each year*. The form provides detailed instructions on how to calculate and claim the credit based on salary categories, filing status, etc..
Please see our article entitled “What You Need To Know About The Employee Retention Tax Credit” for more information about eligibility requirements and how to calculate and claim this important tax relief
Understand How to Calculate Employee Retention Taxes
The employee retention tax credit is a tax break that allows businesses to reduce their taxes owed by qualifying employees. To qualify, an employee must have worked for the company for at least 330 days during the tax year. Additionally, the employee must have been employed at the company for at least two years prior to the year in which they qualify for the credit.
To calculate your credit, you'll need to know your employee's total wages and your company's taxable income. You'll also need to know your company's federal income tax rate. Finally, you'll need to subtract your company's employee retention tax liability from your employee's total wages. The result is your credit.
You can claim your credit only if you're an eligible company. To be an eligible company, you must have paid at least $5,000 in federal income taxes during the year in which you claim the credit. You also must have employed at least 50 qualifying employees during the year.
Qualified wages are defined as wages that are actually paid to an employee during the year in which they work. Wages that are paid in advance or in kind don't count as qualified wages. You also can't claim a credit for wages that are subject to social security or Medicare taxes.
You may have to adjust your gross receipts when calculating your credit. This is because some types of income are treated differently when it comes to calculating taxes owed. For example, income from property that's used in business is usually taxed at a lower rate than other types of income. If this is the case, you'll need to adjust your gross receipts to reflect this difference in taxation.
Know What Counts as Qualified Wages
There are a few things you need to keep in mind when calculating your employee retention tax credit. First, you'll need to identify your eligibility criteria. This includes things like whether you have employees who have worked for you for at least 183 days in the current tax year, and whether your company has had employees for at least two years.
Next, you'll need to estimate the amount of tax credit you can receive. This will depend on a number of factors, including the amount of qualified wages you pay your employees and the amount of taxes that your company pays in.
Finally, you'll need to understand how to calculate employee retention taxes. This includes figuring out how much gross receipts your company must reduce by in order to qualify for the credit, as well as figuring out any additional taxes that may be due.
Once you've calculated all of these numbers, it's time to file your claim with the IRS. This will require filling out Form 8884 and submitting it with your company's tax return.
Adjust Gross Receipts When Necessary
If you are eligible for the employee retention tax credit, you will need to estimate the amount of the credit you can receive. To do this, start by estimating your federal taxable income from line 38 of your 2017 income tax return (Form 1040), minus any deductions that you took on that form. From this figure, subtract your qualifying wages (defined below) and then multiply that result by 50%. This is your total refundable employee retention tax credit entitlement. If you have more than one qualifying worker, divide the total amount of credits between them equally. To claim these credits yourself or to give them as a tax deductible gift to an eligible worker, complete Form 8453 and mail it along with a copy of your 2017 IRS income tax return to:
Social Security Administration
Retirement Tax Offset Program
P.O. Box 760432
Stamford VA 20176-0432
File Your Claim with the IRS
If you received an employee retention tax credit in 2018, you need to file Form 8913 with the IRS. This form is used to claim the credit and will require information such as your gross receipts, your payroll taxes paid, and your employee counts. You might also have to make changes to your income tax returns for 2019 if you received a federal or state retention tax credit in 2018.
Calculating your Employee Retention Tax Credit can help you receive some financial relief if you qualify for it. The tax credit is based on the amount of qualified wages paid during the year and is subject to eligibility criteria, so be sure to familiarize yourself with what counts as qualified wages and how to adjust gross receipts when necessary. Finally, file a claim with the IRS in order to take advantage of this tax credit opportunity.