In the midst of a pandemic, small business owners are facing unprecedented challenges. From navigating remote work to adapting to new safety measures, it’s been an uphill battle for many. But there is one tool that has emerged as a lifeline for struggling businesses: the Employee Retention Credit (ERC). This tax credit not only helps employers keep their staff employed during tough times but also provides significant financial benefits.
In this blog post, we’ll explore how ERC can help small business owners weather the storm and come out stronger on the other side. So, whether you’re running a mom-and-pop shop or managing a growing startup, read on to discover why ERC should be at the top of your list of pandemic relief strategies!
How Employee Retention Credit Helps Small Businesses
When the pandemic hit, many businesses were forced to shut. Because of this, millions were left out of work and may struggled to make ends meet. However, the federal government quickly stepped in with the Paycheck Protection Program (PPP). This would help businesses keep their employees on the payroll but, unfortunately, these loans were not enough for many businesses.
The Employee Retention Credit (ERC) was created as part of the CARES Act to help businesses keep their employees during the pandemic and is equal to 50% of eligible wages paid by the employer.
With its introduction, the ERC has helped countless businesses keep their employees during these difficult times.
Qualifying for Employee Retention Credit
In order to qualify for the employee retention credit, businesses must have experienced either a full or partial shutdown due to COVID-19, or a significant decline in gross receipts. If your business has been affected by COVID-19, you may be eligible for the employee retention credit.
The employee retention credit is available to businesses that employ workers in the United States. This includes:
- Sole proprietorships
- Partnerships
- Corporations
- Non-profit organizations
To claim the employee retention credit, businesses must file an employee retention credit application and wait for it to be reviewed by the relevant party. Once it has been checked over, and approved, businesses are able to take advantage of this initiative.
What Happens If You Don’t Qualify
If a business does not meet the eligibility requirements for employee retention credit, they may be forced to explore alternative options for financial relief. It’s important to note that the Employee Retention Credit was specifically designed to assist businesses that were impacted by COVID-19, so if a company doesn’t qualify, it could indicate they weren’t as affected as other organizations.
However, this also means they won’t receive any tax credits or assistance from the government in regards to retaining employees. This can put significant pressure on businesses since salaries and wages are one of the largest expenses companies incur. They may need to consider cutting back hours, laying off staff members, or even closing their doors entirely.
These decisions can have far-reaching consequences on both employers and employees alike, making it essential for businesses to seek out alternate forms of financial assistance should they not qualify for employee retention credit.
Calculating the Amount of Credit Available
There are a few key things to know when calculating the amount of credit available under the employee retention credit:
- The credit is based on qualified wages paid to eligible employees. Qualified wages are those that are paid for time worked during the covered period (generally, March 13 – December 31, 2020).
- The employer can claim credit for every employee on the payroll. However, only employees who were not working during any part of 2019 are considered eligible for the credit.
- The credit is claimed on Form 941, Employer’s Quarterly Federal Tax Return. The credit is then refunded to the employer either through a reduction in future tax deposits or as a refund after filing the return.
Benefits of Using Employee Retention Credit
One major benefit of using this credit is that it can help reduce turnover rates, which saves the company both time and money in terms of hiring and training new staff members.
The credit also encourages employers to retain employees who might otherwise be let go during economic downturns. This is because it provides financial incentives for keeping them on board even when business slows down. Additionally, businesses may enjoy tax savings with the use of this credit, which can further improve their bottom line while still offering competitive benefits packages to their workforce.
Overall, incorporating employee retention credits into your HR strategy can provide numerous benefits for both employers and employees alike.
Conclusion
The Employee Retention Credit has been a crucial, life-saving measure for businesses during the pandemic. It provided much-needed financial assistance to employers so they could keep their employees on payroll and help them weather these unprecedented times of financial distress.
As we look towards the future, hopefully this credit will be available again should another crisis arise and businesses need support in order to retain their workforce.