If you use a PEO, you can also claim the 2022 employee retention credit. This credit is for qualified health expenses. However, if you are using a Paycheck Protection Plan loan, you will not be eligible for this credit. In this article, we will review which types of expenses are eligible for this credit.
Qualified health expenses are eligible for employee retention credits
Whether a company can claim the 2022 employee retention credit depends on the number of employees it has and the types of health care plans it offers. The credit is available for wages and the allocable portion of health plan expenses paid by the employer, including health insurance premiums and pre-tax contributions.
The credit does not apply to contributions to an employee’s HSA or FSA, although certain types of contributions may qualify.
The ERC is designed to encourage firms to retain employees and keep unemployment claims to a minimum. As such, it differs from the tax credits available in previous years.
The IRS has different methodologies for calculating qualified health expenses, which include a company’s pre-tax wage and employee’s pre-tax compensation, but excludes the after-tax compensation paid to an employee. First, corporations must determine the number of comprehensive workers they have and the amount of permissible salaries for those workers.
Paycheck protection program loan is not eligible for 2022 employee retention credit
If your company offers a Paycheck Protection Program (PPP), you may be wondering whether you can use the loan proceeds to get a 2022 Employee Retention Tax Credit. The program is designed to help small businesses retain employees through tax benefits. It is available to businesses with less than 500 employees.
Before the new legislation, Paycheck Protection Program (PPP) loan recipients were not eligible for this benefit. The law now allows eligible employers to take advantage of both the ERC and the PPP, but employers must make sure the funds from the PPP loan are used to cover the ERC.
The IRS has published guidance on the new ERC eligibility criteria. This credit applies to a portion of a business’s gross receipts that was suspended for at least half a quarter. However, businesses may not qualify for the credit if a government order related to COVID-19 forced the business to close or a significant drop in gross receipts caused by the business’s bankruptcy.
Business owners using a PEO are eligible for 2022 employee retention credit
Business owners who use a PEO are eligible to claim the 2022 Employee Retention Credit. This credit is based on the wages paid to employees. The amount of this credit varies from employer to employer. Employers who are using a PEO can claim up to $7,000 per employee per quarter.
Employers can claim this credit up to two years back from the date they hired employees. However, they must also show that the business ceased operations during 2020 or 2021. The credit is based on the amount of wages and other personnel expenses. Businesses can claim this credit for up to three years, and can claim up to $26,000 per employee.
For new businesses, they can use the first-quarter figures from this year as the first year of operation. This can be particularly useful when they did not have the figures for 2019 prior to starting business.