The Employee Retention Credit (ERC) is a refundable payroll tax credit that Congress has made available to taxpayers. This means that the Internal Revenue Service (IRS) can send you a refund that is greater than the amount of payroll taxes you paid. A tax refund is a reimbursement to taxpayers who have overpaid their taxes, usually because employers have withheld too much from their paychecks. The Treasury Department estimates that nearly three-quarters of taxpayers are overwithheld, resulting in tax refunds. Overpaying taxes can be seen as an interest-free loan to the government.
The Employee Retention Credit is one of the most significant tax credits available to businesses and nonprofit organizations in recent years. Under the law, companies are eligible for a tax credit equal to 100% of the paid sick leave and paid family leave they offer to employees. Employees who normally provide services in another state for an employer located outside California will not be subject to unemployment insurance (UI), job training tax (ETT) and disability insurance (DI) withholding if they are temporarily serving in California due to the COVID-19 pandemic. The American Rescue Plan extends a number of important tax benefits, particularly the Employee Retention Credit and the Paid Leave Credit, to small businesses. Tax refunds are a great way for taxpayers to get back money they have overpaid. The ERC is a great way for businesses to get back money they have paid in payroll taxes.
Understanding how these credits work and how they can benefit you can help you maximize your tax savings. The ERC is available to employers who have experienced a decline in gross receipts of at least 20% compared to the same quarter in 2019. To qualify for the credit, employers must pay wages to employees who are not providing services due to the COVID-19 pandemic. The credit is equal to 50% of qualified wages up to $10,000 per employee, per quarter. The Paid Leave Credit is available to employers who provide paid sick or family leave wages to employees affected by COVID-19. The credit is equal to 100% of qualified wages up to $200 per day and $10,000 per employee, per quarter. Employers can claim both credits for the same employee. It's important for employers and employees alike to understand how payroll taxes and refunds work. Knowing how these credits work and how they can benefit you can help you maximize your tax savings and get back money you may have overpaid.