There is so much business funding out there… if you know where to look. We’ve put together this business tax credit guide to help you start saving today.
1. Employee Retention Credits (ERC)
You’ve probably heard of these by now, but ERC is by far one of the most lucrative relief options available to businesses today.
Who Qualifies: Employers who experienced a full or partial suspension of their operations (for example, due to government shutdown orders!) or a significant decline in gross receipts (20% in 2021 quarters compared to 2019 quarters) due to COVID-19. The credit is available to all business sizes and industries, even non-profits. Additionally, the American Rescue Plan Act (ARPA) further expanded eligibility criteria to include PPP recipients and start-ups born 2/15/2020 or later.
Credit Amount: Up to $33,000 per employee. (The maximum ERC for all of 2020 is $5,000 per employee receiving qualified wages. For 2021, an employer can receive 70% of the first $10,000 of qualified wages paid per employee in each quarter.)
How SDP Helps: Our Tax Credit Department can help your business calculate, claim, and report these credits seamlessly. (We’ll even prepare an audit-proof package of our findings!) However, SDP clients not working with our team to claim ERC will need to complete SDP’s Advance Payment 7200 Credit Form to report any Employee Retention Credits claimed or Forms 7200 filed.
2. Work Opportunity Tax Credits (WOTC)
If you are hiring to build your workforce back up, this is a great option to claim up to over $9,000 per qualified new hire.
Who Qualifies: Nearly any for-profit company (and some non-profit entities) hiring individuals in WOTC-targeted groups.
Credit Amount: $1,200 to over $9,000 per qualified hire.
How to Claim: Within 28 days of when your qualified hire starts working at your business, you must file Form 8850 with your state agency to verify that the employee belongs to a targeted group. Then, you will file this credit on your Form 1040 and file a Form 3800 or Form 5884, depending on your sources of income.
How SDP Helps: This credit takes a bit more work to claim, which is why we designed SDP Hire. Our solution functions as a screening survey you can administer to job candidates pre-hire to determine tax credit eligibility. This not only prevents eligible candidates from slipping through the cracks but can also help you make more informed hiring decisions. Once you change a candidate’s status to “Hired”, we’ll automatically file the necessary forms and do all the heavy lifting to deliver your credit.
3. Emergency Paid Leave (EPSL/EFMLA) Tax Credits
These credits were first introduced under the Families First Coronavirus Response Act (FFCRA). These days, employers who opt to offer the extended FFCRA leave still have the option to claim them. Especially if your business is in a state like California, which is now requiring employers to offer supplemental paid sick leave (with no tax credit attached!), this is a must to minimize the financial burden on your organization.
Who Qualifies: Businesses and tax-exempt organizations with fewer than 500 employees that have voluntarily chosen to continue offering the extended FFCRA leave (per the American Rescue Plan Act).
Credit Amount: The tax credits available between April 1 and September 30, 2021, are the same as under the original FFCRA, except for the increased aggregate cap for EFMLA. Find an updated breakdown of credit amounts by leave reason here.
How to Claim: Employers can either report and claim these tax credits on Form 941 or request an advance of the credits by filing Form 7200. (Remember to retain records and documentation related to and supporting each employee’s leave to substantiate the claim for the credits.)
How SDP Helps: SDP has created designated leave codes to automatically apply these credits when recorded in payroll. Keep in mind that as payroll is not processed on a daily basis, you will still need to monitor daily caps on these leaves. Additionally, if you file any IRS Forms 7200 to receive an advance payment of these credits, you will need to complete SDP’s Advance Payment 7200 Credit Form to ensure accurate reporting on your 941s.
4. Tax Cuts & Jobs Act (TCJA) R&D Tax Credit
Despite common misconceptions, the R&D Tax Credit is not limited to Silicon Valley tech companies or scientific research. As a matter of fact, businesses in any industry may be eligible for this credit. (This handy guide from Moss Adams has great examples of qualifying R&D activities across a whole range of industries!)
Who Qualifies: Businesses with less than $5 million in gross receipts for the credit year, and who have no more than five years of gross receipts who have expenses for qualified research and development costs in the United States. The credit is available to businesses in any industry if they’re actively developing new products or processes.
Credit Amount: Up to $1.25 million (or $250,000 each year for up to five years).
How to Claim: File Form 6765. Once this is on file with the IRS and they have approved your credit, file Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. Form 8974 is attached to your 941 when you file it.
5. Retirement Plan Startup Costs Tax Credit
Technically called the Retirement Plans Startup Costs Tax Credit, this is a timely credit to keep on your radar as an influx of states are issuing mandates for employers to begin offering retirement plans. (We just wrote a post on the upcoming deadlines for the Calsavers requirement for California businesses with 5+ employees!)
Who Qualifies: An employer may qualify for this tax credit if:
- It had 100 or fewer employees who received at least $5,000 in compensation in the previous year.
- It had at least one plan participant who was not considered a highly compensated employee.
- No employees received benefits in another qualified retirement plan from your company in the last three years.
Credit Amount: 50% of your retirement plan startup costs (up to $500 per year), for the first 3 years.
How to Claim: File Form 8881.
How SDP Helps: We’re partnered with a number of affordable retirement plan providers that integrate with SDP Connect to make opening your retirement plan as painless as possible. You can contact our team for a free consultation to explore your options and find the best fit for your business!
6. Small Employer Health Insurance Premiums Credit
Lastly, the Small Employer Health Insurance Premiums Credit is another lesser-known tax credit that could benefit your business. Just keep in mind that you can only receive this credit for two consecutive years. As a result, you may want to work with your CPA to discuss your prospective growth and determine if it is in your business’ best interest to take this credit now or wait.
Who Qualifies: Your business may qualify for this tax credit if you:
- Are a business owner with fewer than 25 full-time employees.
- Pay an average wage of less than $51,600 per year.
- Pay at least half of the amount for all of your employees’ health insurance premiums.
- Purchased your insurance plans through Small Business Health Options Marketplace.
Credit Amount: 50% of the amount you paid towards premiums (only 35% if your business is tax-exempt).
How to Claim: File Form 8941.
How many of these tax credits were you already taking advantage of? Were there any you hadn’t heard of before? If you have questions on any of the credits above or need help claiming them, then let’s talk! And don’t forget to follow us on Facebook, Twitter, and LinkedIn for even more business tips and news.