How to Use the ERTC to Recognize Top Performers

September 27, 2023
Dayes Law Firm

The government’s goal in passing the Employee Retention Tax Credit (ERTC) was to reward employers for maintaining the same number of full-time employees throughout pandemic-related shutdowns, budget cuts, and supply chain issues. Now that you have your tax credits (or are working on securing them), it’s time to think about how you’ll use these extra funds. One idea is to use your savings toward an employee rewards program. 

Explore ideas for using the ERTC for employee benefits and information about potential consequences of rewards programs.

How Much Can You Receive from the ERTC? 

The Employee Retention Tax Credit is available to eligible employers who experienced a significant decline in gross receipts in 2020 and/or 2021 compared to the same quarter in 2019. This program gives back credits for qualified wages paid to full-time employees. 

Through the ERTC, you can claim up to $5,000 in qualified wages per employee on your 2020 payroll taxes and up to $7,000 per employee per quarter on your 2021 taxes, totaling $25,000 per employee. This tax credit is refundable, meaning you’ll gain the full amount even if it exceeds your tax liability.  

This refund could provide a substantial amount of cashback that you can use toward employee rewards programs. Employee morale may be low after suffering the staffing shortages and social distancing hardships caused by the COVID-19 pandemic. You can show your appreciation for employees who stuck it out by giving a portion back to them. 

Employee Rewards Programs Ideas

The following are a few ideas for using the ERTC toward employee benefits.

Points-Based Programs

You might consider implementing a points-based program if you don’t want to supply all the rewards at once. Employees can earn points for completing certain tasks, then redeem those points for cash or gifts. 

One-Time Gifts

You may consider providing your employee rewards as a one-time bonus or gift to thank employees for working hard through the pandemic. 

Excursions and Activities

You can combine your employee rewards program with a fun team-building experience that benefits their communication and teamwork skills. 

Top-Performer Rewards

Instead of spreading out ERTC funds to all employees, you can reward your highest-ranking workers for going above and beyond in their duties. 

PTO and Employee Benefits

You may give your employees extra PTO days or sick time as a reward for working hard during the pandemic, but keep in mind that you’ll face the same tax liability for giving regular PTO time. 

The Tax Implications of Employee Rewards Programs

Many business owners overlook the tax consequences, both positive and negative, of employee rewards programs. Depending on how you structure your program, you may be able to deduct a portion of your expenses from your taxes, or you may need to claim the income you’ve paid on your payroll taxes. 

Deducting Rewards

The IRS permits businesses to deduct up to $1,600 in rewards per employee as long as they are part of a written plan. If your rewards are not part of a written plan, you may deduct up to $400 per employee. This rule also applies if you’re providing personal property to employees rather than cash, in which case you’d deduct the value of the rewards. 

Tax Liability for Employers

If your employee rewards do not meet personal property qualifications under IRS guidelines, you may need to claim them on payroll taxes. Does your business need tax help with the ERTC? Call Dayes Law Firm today at 866-567-4510 for assistance.