Regardless of whether you have already filed for Employee Retention Credit (ERC) or not, you may be curious to know if receiving the credit is considered taxable income.
ERC is a form of grant from the government which provides financial assistance to businesses that keep their employees employed during this ongoing COVID-19 pandemic.
It is meant as an incentive to encourage companies to retain their staff and help them sustain operations in these difficult times.
When you're hoping to inject much needed capital into your business, the last thing that should be on your mind is paying taxes on the influx of funds. Nonetheless, it's important to be aware of how this additional income will affect your taxable income.
To ensure you understand what steps need to be taken and when, it's vital that you have an understanding of the necessary requirements so you can prepare for any potential obligations or liabilities.
How Can I Get My ERC?
If you haven't yet taken advantage of the Employee Retention Credit and filed for it, don't worry – it's not too late. Time is of the essence though, so it's important to act quickly in order to receive your business reimbursement.
We can provide assistance with this process by helping you determine eligibility and filing a request on your behalf to get the credit expedited, without any additional hassles or complication. Get started soon to ensure that your business has access to these funds as quickly as possible.
Is My Company Qualified For The ERC?
If your business retained employees while mandated closures due to COVID-19 were in place, you may be eligible for a tax credit. To file for 2020, you must demonstrate that wages have been paid and revenue losses of at least fifty percent occurred.
To apply for the credit in 2021, evidence of a decrease in revenue by twenty percent during the first three quarters is required.
In addition to the requirements already mentioned, there are a few other conditions which must be fulfilled in order to receive credits.
One of these stipulations is whether or not you have obtained PPP loan forgiveness during the year 2020; this will not have an effect on your eligibility for 2021.
Does The Employee Retention Credit Count As Income For Tax Purposes?
In summary, according to Internal Revenue Code Section 280C, the receipt of Employee Retention Credit (ERC) is not considered taxable income. Nevertheless, it will have a significant effect on both your personal tax return and the financial situation of your business.
Moreover, when claiming this credit you must do so on your payroll tax return instead of filing it with your income taxes.
Does The ERC Count Toward My Gross Income?
Since it is not classified as income, your tax credits must not be included in your gross income. Rather, you should subtract the amount of the reimbursement from any payroll expenses that you have incurred.
It is important to remember that this grant is not treated like regular income and so cannot be added to your overall earnings.
What Effects Would ERC Have On My Tax Return?
The Employee Retention Credit can dramatically affect the amount of your tax refund. Even though you don't have to pay taxes on this credit, it is nevertheless subtracted from your payroll expenses and can thus result in a significantly reduced tax refund.
For example, if you paid $200,000 in wages and received a $15,000 Employee Retention Credit (ERC), the total payroll that can be claimed on your business tax return would be reduced to the difference between the two; i.e., $185,000.
Therefore, this credit serves to lessen the wage expenditure amount that can be declared on your tax filing.
How To Report Employee Retention Credit On My Tax Return?
Once more, the Employee Retention Credit affects your financial performance and its amount should be indicated on your yearly tax return to the Internal Revenue Service.
Consequently, it is essential that you document the amount of credit received as a deduction from your total payroll costs for proper accounting purposes.
When filing your taxes, it is important to remember to include the Employee Retention Credit amount as a distinct line item on the form used for recording Payroll Gross Pay.
This should be easy to calculate and report, so make sure that you take into account this additional information when submitting your tax paperwork.
What If I Opted Not To Apply For ERC?
If you are eligible and don't file for or claim the Employee Retention Credit (ERC), then you do not need to worry about reporting it on your tax return.
However, it is important that businesses take advantage of this benefit and claim what they are entitled to. Failing to do so could mean leaving money on the table which your company may have been eligible for.
If you have any queries or concerns in regards to eligibility, estimating the amount of your Employee Retention Credit you can fill out our form here or ask us any questions about your eligibility here.
We are dedicated to helping you get the most out of this credit and will gladly provide assistance with navigating the process so that you can begin taking advantage of these savings today.
Determining What's Taxable Income When Applying For The ERTC
Hopefully, we have helped you to understand whether or not the employee retention credit is taxable income. We hope that readers have found this content to be educational and helpful in their pursuit of understanding this important topic.
With the information presented here, we trust you have a better idea about how to determine if the employee retention credit should be considered taxable income for your business and fill out our form by clicking the button below to determine your eligibility.