The Covid-19 pandemic has had a tremendous impact on businesses over the past year and a half. Many have struggled through financial difficulties and have had to cut back on employees to stay afloat. To help struggling businesses recover, the Biden-Harris Administration created various recovery programs as part of the American Rescue Plan Act. One program that small businesses should consider taking advantage of is the Employee Retention Credit program.
The Employee Retention Credit (ERC) is a quarterly tax credit against the employer’s share of certain payroll taxes. The tax credit is 70% of the first $10,000 in wages per employee in each quarter of 2021. That means this credit is worth up to $7,000 per quarter and up to $28,000 per year, for each employee. If the amount of the tax credit for an employer is more than the amount of the employer’s share of those payroll taxes owed for a given quarter, the excess is refunded – paid – directly to them.
These credits are available for all four quarters of 2021 and may deliver cash flow to your business as soon as you claim them. You can file for this credit for every quarter of 2021 on your form 941 filing and may also receive an advance payment of a portion of the credit. This program will be available to businesses through December 2021.
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You can begin to determine whether you are eligible for the Employee Retention Credit for any given quarter by assessing these questions:
- Was your business fully or partially shut down due to a governmental order during any part of the quarter?
- Or was the business’s gross receipts in a quarter declined more than 20% compared to either (a) the same quarter in 2019 or (b) the immediately preceding quarter in 2020 or 2021?
If the answer to either question is YES, and the business had 500 or fewer employees, then any wages paid in the quarter may count towards the $10,000 per employee amount.
Additionally, businesses that received PPP loans in 2020 or 2021 can still claim the ERC. While wages used to apply for PPP loan forgiveness cannot also be claimed as ERC wages, remaining wages may be eligible for the credit.
Certain small businesses that opened after February 15, 2020 may also be eligible for the ERC for the last two quarters of 2021. If these businesses have less than $1 million in annual gross receipts, they may claim ERCs of up to $50,000 per quarter, even if the businesses have not been shut down or experienced declines in revenue.
Small business owners should take advantage of these programs while they still can as many are ending soon. For more information about the BidenHarris Administration’s recovery programs visit: TREASURY.GOV/CORONAVIRUS