What Are Qualified Wages?

Do you need clarification on what qualified wages are? You are not alone. Many business owners find this tax term confusing. In simple terms, qualified wages are specific employee payments that help businesses claim tax credits. These credits became crucial for many companies during hard times like the COVID-19 pandemic.
 

What Counts as Qualified Wages?

The size of your business affects what wages count. The rules are stricter if you run a large business with over 500 employees. Only wages paid to employees who were not working during a government shutdown or slow period count. Healthcare costs may also qualify, offering businesses a chance to save more.
 

Small businesses have more flexibility. You can count wages for all employees, even if they worked during tough times. Health insurance payments can also qualify. This makes it easier for small businesses to claim tax credits and stay afloat during financial hardships.
 

When Do Wages Qualify?

These wages usually count during specific periods of economic hardship. For example, during the pandemic, many businesses claimed wages paid during mandatory shutdowns or times of reduced operations. Knowing when your business faced such hardships is essential for claiming these credits.
 

What Does Not Count?

Only some types of employee payments qualify. Wages paid to business owners or their family members do not usually count. The same goes for wages that were already used to claim other tax credits. Some bonuses or hazard pay may not qualify either. These credits aim to support regular employee wages, not to create extra tax loopholes.
 

Why These Credits Matter

Understanding qualified wages can help save your business a lot of money. Many companies have saved thousands or even millions of dollars using these credits. This money can then be used to hire more staff, buy new equipment, or build a financial safety net. These tax savings provide real support when your business needs it most.
 

Making It Work for Your Business

Track wages, health insurance payments, and the times when your business faced challenges. Document when your employees worked and when business was affected by government orders or other restrictions. Keeping this information organized will help you claim your credits more easily.
 

Here is a list of what you need to track:
 

• Regular wages and salaries.

• Health insurance payments.

• Business closure dates.

• Revenue changes during tough times.

• Employee work schedules.

• Any government orders that impacted your business.

• Special payments like hazard pay or bonuses.

• Healthcare costs for employees.
   

Getting Professional Help

Working with a tax professional can make a big difference. The rules around qualified wages can get complicated. A tax expert knows these rules and can help you avoid mistakes that might cost you.
 

Moving Forward

Review your payroll records and look for times when your business struggled. These periods qualify for tax credits. Talk to your accountant or tax advisor about your specific situation. They can guide you on what counts as qualified wages and how to claim your credits.
 

Learning about qualified wages may take time, but the savings are worth it. Stay updated on any changes to the program and new opportunities to claim credits. Your effort now could save your business a lot of money in the long run.
 

For more on qualified wages, visit Coomber Law at our Carlsbad, California, office. Call (760) 205-3810 to schedule an appointment today.

 

https://www.lawinsider.com/dictionary/qualified-wages

https://www.irsplus.com/blog/employee-retention-credit-what-are-qualified-wages