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Employee Retention Credit: What You Need to Know
Employee Retention Credit (ERC) could be a very valuable financial tool for a lot of businesses to thrive if used properly. This is a refundable tax credit that appears to be difficult to attain but is far from impossible.
The ERC was authorized to encourage employers to keep employees on their payroll under the CARES Act. Eligible employers have immediate access to ERC by reducing employment tax deposits. Employers may even get an advance payment if the tax deposits are insufficient to cover the credit.
Who Are The Eligible Employers
The qualifications for the Employee Retention Credit (ERC) are two main attributes:
1. Fully or partially suspend operation due to orders from government authority. This would limit commerce, travel, and/or group meetings due to the pandemic.
2. Experience a detrimental decline in gross receipts (income).
The IRS considers a significant decline in gross receipts to be less than 80% of the gross receipts from the previous year. As an example: should a company's gross receipts for 2020 be 1,152,757.00, so if the company earned less than 80% in 2021, then that would qualify this company for the Employee Retention Credit.
How much ERC are you qualified for?
As an employer, you can receive 50% of the qualified wages that you typically pay in a year. These wages also include qualified health plan expenses. The maximum amount of qualified wages considered is $10,000, and the maximum credit for wages paid to an employee is $5,000.
What Are Qualified Wages?
Qualified wages are compensation and health plans paid for by the employer to some or all employees. Paychecks, for instance, are compensated wages.
What Is A Qualified Health Plan?
Qualified health plans are group plans covered by the employer that are not reflected in the employee’s gross income.
Additional information Regarding ERC.
Employee Retention Credit is not compatible with Payment Protection Program (PPP) loans. An eligible employer may only utilize one of these programs under the CARES Act.
Employers are still required to withhold federal taxes on qualified wages. ERC does not make an employer exempt from paying taxes.
Employers - Don't Lose An Employee Who Has An IRS Debt Problem.
Good employees are valuable and hard to find. The IRS has been sending out an enormous amount of "Intent to Levy" notices. The IRS is being very aggressive in its enforcement tactics. Should you receive an IRS levy to withhold money from your employee's paycheck, sometimes the employee will panic and quit their job on order to avoid the IRS levy.
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