Government regulations can often be confusing and intimidating, especially as there have been so many changes made to their rules and deadlines. This is currently happening with the Employee Retention Credit. Past this, research conducted by the National Federation of Independent Business (NFIB) showed only 4% of small business owners are familiar with the ERC program. Additionally, only 8% of owners in 2020 and 10% of owners in 2021 utilized the credit!
The ERC can supply cash relief and large credit amounts when utilized (as much as $7,000 per employee, per quarter)! Here’s what you need to know to take full advantage of the credit:
What is the ERC?
The ERC for small and medium-sized businesses was legislation originally passed as part of the CARES Act to support businesses that were negatively impacted by the effects of COVID-19 in 2020. However, this was extended to include a potentially larger payroll tax credit for the first three-quarters of 2021 thanks to the Consolidated Appropriations Act of 2021.
Eligible small and medium sized businesses can receive up to $5,000 per employee kept on their payroll in the year 2020 and up to $7,000 per employee for the first 3 quarters of 2021.
Who Qualifies?
Businesses and tax-exempt organizations operating in any calendar quarter of 2020 or 2021 can claim this credit. However, they must have:
- A government authority that required a partial or full shutdown of your business during 2020 or 2021. This includes, but is not limited to:
- Change in business hours
- Partial or full suspension of your operations
- Shutdowns of your supply chain or vendors
- Reduction in services offered
- Reduction in workforce or employee workloads
- And much more
- Or gross receipts decline by more than 50 percent during a 2020 or 2021 calendar quarter when compared to the same quarter in the prior year. A business can qualify for one quarter and not another.
- Or a “recovery startup” business that was launched after February 15, 2020, for which the average annual gross receipts do not exceed $1 million, subject to a quarterly ERC cap of $50,000.
Wrap Up
The Employee Retention Credit can still be a bit confusing, even after reading up on it! For those looking to take full advantage of the credit, it may be in your best interest to give your accountant a call. Not only can they assist with explaining anything you may need to know, but they also can assist in your process of claiming the credit!