1. What are ERC Qualified Wages?
ERC (Employee Retention Credit) Qualified Wages are the portion of wages paid to a qualified employee that are taken into account in determining the amount of credit allowable under section 45P. The credit is allowed for each of the first five taxable years beginning in the employee’s first full taxable year of employment with the employer. For this purpose, the credit is allowed only with respect to wages paid to a qualified employee who is not a highly compensated employee.
2. What is the ERC?
Retain Your Employees—Receive A 50% Or 70% Payroll Tax Credit.
When initially introduced, this tax credit was worth 50% of qualified employee wages but limited to $10,000 for any one employee, granting a maximum credit of $5,000 for wages paid from March 13, 2020, to December 31, 2021.
It has since been updated, increasing the percentage of qualified wages to 70% for 2021. The per employee wage limit was increased from $10,000 per year to $10,000 per quarter.
3. What are the benefits of ERC Qualified Wages?
The benefits of employee retention credit qualified wages are:
1. Employers may be able to use the credit to offset their Social Security tax liability.
2. The credit can help employers reduce their federal income tax liability.
3. The credit is available to any business that pays qualifying wages to a new hire.
4. The credit can be used to offset state income tax liabilities as well.
4. How do I become an employee retention credit Qualified Wage Employer?
There are several things that an employer can do in order to become a qualified wage employer and thereby receive employee retention credit.
1- First, the employer must offer a wage that is at least equal to the prevailing wage in the area.
2- Second, the employer must make contributions to a retirement plan on behalf of their employees.
3- Lastly, the employer must offer health insurance coverage to their employees.
5. How do I know if my employees are receiving ERC Qualified Wages?
If you are an employer, you must withhold income tax from your employees’ wages. You must also pay social security and Medicare taxes. There are several ways to do this.
One way to pay these taxes is by using the percentage method. Under this method, you figure how much tax to withhold by using a set percentage of each employee’s wages. The percentage for social security is 6.2% and the percentage for Medicare is 1.45%. You can use any combination of these two taxes to figure the withholding amount. However, the total of the two taxes must be at least 7.65%.
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6. What are the penalties for not complying with the ERC?
The retention credit encourages employers to keep qualified employees on their payroll for at least two years. If an employer does not keep a qualified employee on their payroll for at least two years, they may be subject to the following penalties:
– A penalty of up to $1,000 per employee will be assessed.
– The employer will not be able to claim the credit for that employee.
– The employer may be subject to other penalties under the Internal Revenue Code.
In order to be eligible for the employee retention credit, wages must be qualified wages. So, what are qualified wages? Please visit our website or give us a call today to learn more. We can help you understand the credit and how to claim it so that you can keep your best employees happy and on staff.