Claiming employee retention credit can be tough to navigate. There are numerous qualifications to meet, forms to fill out, and many questions that arise from the matter. One of these questions may be: can an employer claim retention credit annually?
What is Employee Retention Credit?
Employee retention credit is a tax credit put into place to aid businesses struggling as a result of the Corona pandemic.
Qualifying employers can claim this credit based on the wages of their employees.
Claiming Employee Retention Credit Annually
Businesses can claim employee retention credit in their quarterly performances in the time after March 12th and before January 1st.
It was a CARES act measure put in place to relieve businesses suffering from Coronavirus and was oriented to smaller businesses that were hurt more by the pandemic.
Since employee retention was a measure specifically implemented to counteract the financial damage of Covid-19, an employer can only claim it once, which means that employee retention credit can not be claimed annually.
It is important to remember that while employee retention credit can only be claimed once, an employer’s ability to do so is contingent on a business’s eligibility.
A business’s position can change from quarter to quarter, and employee retention credit is based on overall sales, which means that a business could qualify to claim employee retention credit at the start of the quarter but may not qualify by the end of that same quarter.
To put it simply, just because an employer qualifies for part of a quarter, it doesn’t automatically mean that they qualify for retention credit.
Who Can Claim Annual Employee Retention Credit?
Employers whose businesses meet the following qualifications are eligible to claim employee retention credit:
Inhibited Operations Due to Government Implemented Limitations
If the government invokes restrictions on commerce, travel, and trade of a specific company due to nationwide impediments such as Covid-19, then the employer can claim employee retention credit.
Up to $10,000 per employee can be claimed by an employer who had to cover wages such as employee health care during a period in which the government halted a company’s operations due to Covid-19.
A Significant Decline in Gross Receipts
Pay attention to whether there is a significant decline in gross receipts that begins on the first day of the calendar year or ends on the first day of the first yearly quarter.
If the gross sales of a quarter show a significant decline in any of the specified dates, then an employer can claim employee retention credit.
The IRS details the exact qualifications, forms, and amounts here.
Will This Tax Credit Ever Be Made Available to Claim Again?
This question is full of uncertainty as employee retention credit was a relief effort for a completely unexpected disaster, so there’s no telling if this opportunity will be invoked in the future.
If a catastrophic event occurs in the near future, it’s likely employee retention credit or something similar will become available to claim.
Still, given its nature, it is best to assume that it won’t ever be available to claim again, and thus an employer should not seek to rely on it after the 2021 tax year.
In summation, qualifying employers cannot claim employee retention credit annually as it is a one-time tax credit put into place by the Covid-19 relief and compensation program. If an employer already claimed this credit, they cannot reapply for it again.
Keep in mind that this tax credit will not be available in the upcoming 2022 business year and can only be claimed for 2021 unless stated otherwise by the IRS.