Straightforward Employee Retention Tax Credit for Home Improvement Service Companies Solutions - An Update

With this in mind, taxpayers may want to take steps to accelerate income into 2021 to take advantage of the lower rates. This could be done through delaying equipment purchases or more aggressive billing. The majority of construction contractors consider revenue to be earned on a per-completion basis.

What is the employee retention tax credit?

The IRS offers a tax credits called the employee retention tax credits. This credit was established by the CARES Act (March 2020). The Employee Retention tax credit was extended and expanded by both the Relief Act of 2121 and the American Rescue Plan Act of 2221. This is a tax refund that pays employers back a percentage of their employee's wages during the months of the COVID-19 lockdown in the years 2020 and 2021. This is not an advance loan and does not have to be repaid. It was created in order to provide economic relief to American businesses that were affected by the pandemic.

Small to medium-sized businesses can receive qualifying wage credits under the ERTC. 2020 must see a 50% revenue decrease, while 2021 will see a 20% quarter-over-quarter decrease. As example, Woods says he has some construction clients on the West Coast who have 180 to 200 employees that have received over $3 million in employee retention credits.

Information On Employee Retention Tax Credit For Construction Companies

employee retention credit

The construction environment is constantly changing from shortages of workers to material price increases. Thankfully, economic relief measures continue to be accessible through the American Rescue Plan Act of 2021. Construction companies may qualify if they had to close or limit capacity due employee retention credit to government closures, supply chain issues or distancing requirements. A contractor must be a qualified employer to receive an ERTC. This means that they must be a controlled group as defined by Internal Revenue Code Section 52 (greater then 50% ownership test) or Section414 on an aggregated basis.

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• Construction companies and home-improvement service businesses can apply for the employee retention tax credit if they are in financial difficulty.
• Any ERC that is obtained reduces the amount deductible on the tax return.
• If the employer still finds that the above analysis does not yield sufficient wages, PPP full-dollar forgiveness is often more appealing than a partial retention credit.
• Employers can also be eligible for ERTC if their gross receipts have decreased by 25% in any of these periods compared to 2019.

Small businesses that have had their revenues drop or been temporarily shut down by COVID are eligible for this credit of up to $28,000 each per employee for 2021. This may be especially true for construction firms, where payments ERTC tax credit are often tied with the completion of specific projects. Stages of a project may be delayed or accelerated for reasons that are not related to the COVID-19 crisis.

What The In-Crowd Won't Tell You About employee retention tax credit for construction companies

The ERC is a fully refundable tax credit for employers equal to 50 percent of qualified wages that eligible employers pay their employees. This credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount that an employee can claim for qualified wages for all calendar quarters of the year is $10,000. Therefore, the maximum credit allowed for qualified wages paid to employees is $5,000.

In 2021, the credit available to a business is greater and there are less strict requirements. The business must show a 20% decrease in gross receipts in a calendar quarter of 2019 as compared to the same quarter of 2021. As an alternative, a business can use the immediately preceding quarter to qualify. A business can use a 20% drop in the fourth-quarter 2020 compared to the fourth quarterly of 2019, or a 20% drop for the quarter of 2021 compared the quarter of 2019. The decrease does not have be related to any particular pandemic that caused a loss in gross receipts.