Business Tax Credits
Maximize Tax Credits to Enhance Your Company’s Growth
Your job is to be an expert in your business. Our job is to be knowledgeable from a CFO perspective on the variety of tax credits available for your business. We use this experience to help you understand which tax credits your business may be eligible for. Through our vetted network of partners, we introduce who we feel is best suited to legally determine the value of the credit (contingent on eligibility of course) and can provide audit support.
Employee Retention Credit (ERC)
The Employee Retention Credit (ERC) was established in March 2020 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to encourage businesses of all sizes to keep employees on their payroll.
Governmental orders limiting commerce had a negative financial impact on businesses in a variety of ways. The shut downs and operational changes resulted in economic hardships for both the business owner and the employee alike.
The ERC provides aid to eligible employers in the form of a refund check that does not need to be paid back. However, the refunds issued, must be reported in the appropriate federal income tax returns. You need expert guidance through the credit calculation process, navigating the Internal Revenue Code, and understanding how to make the credit work best for your business. Our partners’ intimate knowledge of the legislation has allowed us to legally qualify many businesses that were previously told they did not meet the qualifications.
We help you explore employee retention tax credits as well as other opportunities that are part of disaster tax relief.
Employee Retention Credit Frequently Asked Questions
How many employees must I have to be eligible for the Employee Retention Credit?
Employers of any size may be eligibile for the employee retention tax credit. The number of employees can affect how the calculation is performed but does not disqualify any business.
Are tax-exempt employers eligible for the Employee Retention Credit?
Yes, organizations described in section 501(c) of the Internal Revenue Code and exempt from tax under section 501(a) of the Code are considered eligible employers for purposes of the Employee Retention Credit if they are employers who paid qualified wages and who otherwise meet the requirements to be eligible for the employee retention tax credit.
Is the ERC only for full-time employees?
No. An employer may include qualified wages paid to both part-time and full-time employees in the calculation of the ERC. However there are certain limitations on the calculation of the tax credits.
Do I have to repay the ERC at some point? No. However, the refunds issued, must be reported in the appropriate federal income tax returns.
The ERC is a tax credit, which means it is not a loan; it does not have to be paid back. Refunds issued, must be reported in the appropriate federal income tax returns. This is critical as it is part of the ERTC compliance process.
Who is eligible for the ERC?
In order to qualify for the Employee Retention Credit for the year 2020 under the CARES Act, an employer must have been impacted by either:
- Government Mandates - e.g offices/operations closed, or partially suspended by government order or
- Gross Receipts - a 50% or more decline in gross receipts compared to the same quarter in 2019
- Special rules apply for Large Employers- defined for 2020, as businesses with more than 100 full-time employees
- The total maximum credit for all of 2020 is $5,000 per employee.
In order to qualify for the Employee Retention Credit for the year 2021 under the CARES Act, an employer must have been impacted by either:
- Government Mandates - e.g offices/operations closed, or partially suspended by government order or
- Gross Receipts - a 20% or more decline in gross receipts compared to the same quarter in 2019
- Special rules apply for Large Employers- defined for 2021, as businesses with more than 500 full-time employees
- The total maximum credit for each quarter of 2021 is $7,000 per employee totaling $21,000 per employee if eligible for all 3 applicable quarters.
What period is applicable for ERC purposes?
For most companies, the ERC is applicable for all quarters of 2020 and the 1st, 2nd and 3rd quarter of 2021. In certain special cases, only the 3rd and 4th quarter of 2021 will be applicable.
I already took out a Paycheck Protection Program (PPP) loan. Am I still eligible for ERC?
Businesses are able to claim both PPP and ERC but funds used for payroll from forgiven PPP loans reduce the credit potential on the ERC.
Research & Development Tax Credit (R&D)
What is the Research & Development Tax Credit?
The Research & Development Tax Credit (R&D) is a government-sponsored tax incentive offered to companies creating or improving a product as part of their business activities. In addition, A Qualified Small Business, defined as a business with less than $5 million in annual gross receipts and having gross receipts for no more than five years, can use the R&D tax credit to offset the FICA employer portion of payroll tax.
Who is Eligible for the Research & Development Tax Credit?
The R&D tax credit is available to companies conducting R&D activities in the United States, developing new or improved business components, including products, processes, computer software, techniques, formulas, or inventions that result in new or improved functionality, performance, reliability, or quality.
When and how can you claim R&D tax credits?
You can make a claim for R&D relief up to two years after the end of the accounting period to which it relates. You can claim the relief by treating it as a deduction from the company’s profits for the accounting period. Your claim must be made in the company tax return or an amendment to the return.
How much R&D can you claim?
If you’re profit-making, you can receive up to 25% credit back from your R&D expenditure. If you’re loss-making, you can receive up to 33.35%. The more profit you make, the greater your credit will be (up to 25% maximum).
Work Opportunity Tax Credit (WOTC)
What is a Work Opportunity Tax Credit?
The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment.
WOTC joins other workforce programs that incentivize workplace diversity and facilitate access to good jobs for American workers.
Who is Eligible for a Work Opportunity Tax Credit?
Employers of all sizes are eligible to claim the WOTC. This includes both taxable and certain tax-exempt employers located in the United States and certain U.S. territories. An employer may be eligible for WOTC when they hire from certain target groups of job seekers who face employment barriers.
When and How Can I Claim the WOTC?
The WOTC tax credit is a one-time tax credit for each new hire – and there is no limit to the number of new hires who can qualify an employer for a tax credit. While taxable employers claim the WOTC against income taxes, eligible tax-exempt employers can claim the WOTC only against payroll taxes and only for wages paid to qualified Veteran targeted group members.
How Much Credit is the WOTC?
In general, the WOTC is equal to 40% of up to $6,000 of wages paid to or incurred on behalf of an individual who: is in their first year of employment; is certified as being a member of a targeted group and performs at least 400 hours of services for that employer.
The Consolidated Appropriation Act, 2021 (Section 113 of Division EE P.L. 116-260) authorized the Work Opportunity Tax Credit (WOTC) extension until December 31, 2025.
Why Use AddBack Solutions
Addback Solutions is a Columbus-based team of consultants that educate our clients on available tax credits, how to qualify, data requirements, and how to complete application forms.
We understand what tax credit programs are available, whether your business may qualify, and which partner to engage to determine eligibility, the dollar amount of the credit and provide audit support.