Save your hard-earned dollars with employee retention credit – What to know
Did you know that the Coronavirus Aid, Relief, and Economic Security (CARES) Act also has a provision for business relief that is called the Employee Retention Credit (ERC), which is a payroll tax credit given to ‘qualified wages’ paid to full-time employees from March 13, 2020, to December 21, 2020?
The main objective of the ERC was to motivate employers to retain their employees on the payroll, even when they weren’t working covered during the pandemic period. Keep reading to know how to claim employee retention credit for 2020 and 2021.
Which are the small business organizations that qualify for ERC?
The 2021 tax credit was available to small business owners that have 500 or fewer employees who have seen a decline of 20% in gross receipts as against the same quarter in 2019. Small or medium-sized businesses that were forced to shut down due to the restrictions of the pandemic are all eligible for employee retention credit or ERC.
When the ERC was first introduced, it prevented businesses that borrowed funds from the SBA PPP from seeking benefits from the ERC. PPP loans are forgivable, only if the small business owners utilize the money for payroll. Later on, with the enactment of the American Rescue Plan, all such small businesses can qualify for ERC even if they took out PPP loans.
Why are small businesses not seeking the help of the ERC?
Despite the fact that employers can save hundreds of dollars through ERC, not many are seeking help from it. As per a survey by the National Federation of Independent Business (NFIB), it was found that 38% were moderately familiar with the pandemic tax credit and only 8% actually claimed this credit in 2020-2021. More than half of the respondents of the survey said that they are planning to apply in 2021 but most of them relied on their accountant or CPA for further assistance.
The main reason behind the underutilization of tax credits is that not many small businesses are aware of what it is and how it is beneficial. People have to be educated more in order to understand what ERC is and how it can be immediately effective for small and medium-sized businesses.
So, if you’re a small business owner who has had a tough time during the pandemic, we hope you have taken advantage of the employee tax credit and helped retain your employees.