Eligibility for the Employee Retention Credit for Seasonal Employers
Seasonal employers can qualify for the Employee Retention Credit (ERC). They must have an active business during a calendar quarter. Importantly, their operation should experience a full or partial shutdown due to governmental orders related to COVID-19. Alternatively, their gross receipts for a quarter in 2021 or 2022 must show a significant decline compared to the same quarter in 2019. Any reduction of 20% or more qualifies. Seasonal employers who meet these criteria become eligible for the ERC.
Seasonal Employer Defined
The IRS defines seasonal employers as those who operate for less than six months in a year. Alternatively, during the off-season, the business’s gross income must be 30% or less than its in-season period. For example, a summer camp or a ski resort often operates on a seasonal basis. Such businesses, which have a limited period of high-revenue operation, can apply for the ERC if they meet the other conditions.
Calculating Full-Time Employees
The calculation of full-time employees is a significant factor for seasonal employers seeking the ERC. In this context, a full-time employee is someone who works at least 30 hours per week or 130 hours per month. However, for the purpose of ERC, seasonal workers are not included in the calculation unless they work for more than 120 days in a year. This distinction provides an advantage to seasonal employers as it might help them stay under the 500-employee threshold, thereby increasing the credit rate.
Credit Calculation for Seasonal Employers
The ERC can provide a considerable financial boost for eligible seasonal employers. The credit is 70% of the first $10,000 in wages paid to each employee per quarter. This translates to a maximum of $7,000 per employee per quarter. Seasonal employers can claim the ERC for quarters in which they pay wages, even during off-season periods if they retain employees. Moreover, if the credit exceeds the employer’s total liability of the portion of Social Security tax for all employees, the excess is refundable.
Claiming the Employee Retention Credit
Claiming the ERC involves reporting total qualified wages and related health insurance costs for each quarter on quarterly employment tax returns. This usually means filing Form 941. If the employer’s tax liability doesn’t cover the credit, they may receive the remainder as a refund. The IRS also allows employers to request an advance of the ERC by filing Form 7200. Seasonal employers should consider consulting with a tax professional to maximize their benefit from this program. With careful planning and documentation, seasonal businesses can use the ERC to alleviate some of the financial impacts of the COVID-19 pandemic.
Understanding Seasonal Employment
In the United States, a seasonal employee is generally hired to work on a temporary basis. These employees typically work during a specific season or time of the year. This is often due to an increase in demand during that particular period. For instance, retailers might hire extra employees during the holiday season to handle the increased customer traffic. Likewise, tax firms often hire additional help during tax season.
Regulations Surrounding Seasonal Workers
The Fair Labor Standards Act (FLSA) provides guidelines on who is considered a seasonal employee. According to the FLSA, an employee is considered seasonal if they work no more than 120 days or four months in a year. However, different rules might apply depending on the industry. For example, the Affordable Care Act (ACA) has a different definition for seasonal workers in regard to healthcare benefits. Under ACA, an employer is not required to provide health insurance if an employee works less than 120 days in a calendar year.
Implications for Seasonal Employers and Employees
The hiring of seasonal employees has both benefits and drawbacks for employers and workers. Employers can adjust their workforce according to business needs without long-term commitment. However, training and turnover costs can be significant. For employees, seasonal jobs offer a chance to earn additional income. It also provides an opportunity to gain experience and skills that might lead to permanent employment. Yet, the temporary nature of these jobs often means less job security and fewer benefits.
Conclusion
It’s always best to check with the experts before you try any business initiative for the first time. For the ERC, for instance, it would be wise to consult both a lawyer with IRS experience, and a Certified Public Account with tax experience. This way you stand a good chance of never running afoul of Uncle Sam and his cash-hungry minions.
