Are you an employer looking for help with the 1099 employee taxes and a retention tax credit?
You’re not alone!
According to Pew Research Center, prior to the pandemic, 16 million self-employed businesses created jobs for 30 million workers.
Whether self-employed, sole proprietor or LLC, non-government businesses may be eligible for the retention tax credit.
The employee retention tax credit is not a loan and does not have to be paid back to the federal government.
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If you are self-employed with no employees, you do not qualify for the retention tax credit.
Do you need a better understanding of what are 1099 employee taxes and the retention tax credit, here’s what you need to know?
1099 Employees and Tax Withholdings
Employers who hire 1099 employees and independent contractors do not pay unemployment insurance, medicare tax, social security tax, and more.
If you are a bonafide 1099 employee, the IRS requires you to pay self-employment tax. These taxes include 12.4% social security and 2.9% for Medicare taxes.
Depending on where you operate, you may have to pay state and local taxes. Be sure to check with your tax accountant for your best business tax strategy.
If you are a 1099 employee who pays employees to assist you on your projects and client tasks, you may qualify for the retention tax credit.
1099 Employee and the Retention Tax Credit
If your business lost significant revenue due to the Coronavirus closures, and you bravely reopened, putting your employees back on the payroll, you may be eligible for the employee retention tax credit.
The employee retention tax credit is part of the American Rescue Plan Act of 2021.
Calculating employee retention credit will require help from a tax professional due to several changes and possibly needing to file an amended return.
The wages you paid to your employee between March 12, 2020, and January 1, 2021, may qualify for this government incentive.
These qualified wages include salaries, hourly wages, bonuses, commissions, cash tips, and more.
If it’s determined that your business is eligible for the retention tax credit for the tax year 2020, you will get up to $5,000 per employee.
In the event that you are determined to be eligible for the tax year 2021, you can get up to $7,000 for each employee.
You will be happy to know if you received a Paycheck Protection Program (PPP) loan, you may still be qualified to receive the employee retention tax credit.
You have until 2024 to claim your employee retention credit.
Take Advantage of the Retention Tax Credit
1099 employee taxes and the retention tax credit can be difficult to figure out without a tax professional.
This tax credit does not have to be calculated by you on your own.
There are a few qualifications that a tax expert in government incentives can help you with, such as your qualified wages, the number of full-time employees, and other requirements.
If you enjoyed this article, you’ll love our other tax credit and government incentive blog posts.
Check them out today!