Employee Retention Credit: Don't Miss Out!

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EMPLOYEE RETENTION CREDIT: DON'T MISS OUT!

Written By: Alan A. Lips, C.P.A.
Published By: Aventura News
Date: May 2006

Did your business experience a shut down of operations due to one of the hurricanes in 2005? If so, you may qualify for some additional tax relief when filing your 2005 taxes.

According to the Katrina Emergency Tax Relief Act of 2005, which was broadened to include Hurricanes Wilma and Rita, a business may be able to claim a credit on its 2005 return for wages paid to employees if it was rendered inoperable any day from Aug. 29, 2005 to Dec. 31, 2005 . This credit, called the Employee Retention Credit, is worth up to $2,400 per employee (40% of the first $6,000 paid to an employee during that time).

Here are a few musts to qualify for the credit:

ˇ The Business must have been located in a Federal Emergency Management Agency (FEMA)-designated individual assistance area.

ˇ The Business must have been rendered inoperable any day from Aug. 29, 2005 to Dec. 31, 2005 , as a result of hurricane damage.

ˇ The Business employs 200 people or less on average during the tax year. The credit applies to wages paid from Aug. 29, 2005 to Dec. 31, 2005 :

ˇ The employees worked for the business mainly at its location in a FEMA-designated individual assistance area. (The credit is not affected if the employee reports to work at another location while the business is inoperable.)

In calculating the Employee Retention Credit, businesses cannot count wages already used to determine the Work Opportunity Tax Credit. Other limits on this credit may apply; some may affect the credit amount and other aspects of the business's Federal income tax return, consult with a CPA for details.

Alan A. Lips, CPA, is a partner in the Florida-based full-service accounting firm Gerson, Preston, Robinson & Company, P.A. He can be reached at 305-868-3600 or emailed at aal@gprco-cpa.com.