The employee retention credit (ERC) has been a lifeline for many businesses during the unprecedented challenges of the past year. This refundable tax credit was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, and later extended and expanded under the Consolidated Appropriations Act, 2021 and the American Rescue Plan Act of 2021.
The ERC was designed to help businesses retain their employees during the economic downturn caused by the COVID-19 pandemic. Eligible employers could receive a tax credit for a percentage of qualified wages paid to employees during the period of economic hardship.
The ERC has been a crucial support for countless businesses, especially in industries heavily impacted by pandemic-related shutdowns and restrictions. It provided a financial incentive for employers to keep their employees on payroll, even if they were unable to operate at full capacity.
However, as the economy gradually begins to recover and vaccination rates increase, many businesses are wondering if the ERC is still available as a support option. The answer is yes – the ERC is still open for businesses, and in fact, it has been enhanced and extended to provide even more support.
The American Rescue Plan Act of 2021 extended the ERC through the end of 2021 and expanded its scope to include more businesses. Now, eligible employers can claim a tax credit for up to 70% of qualified wages paid to employees, up to a maximum of $7,000 per employee per quarter. This is a significant increase from the previous 2020 version of the ERC, which offered a 50% tax credit on qualified wages up to $10,000 per employee for the entire year.
In addition, the eligibility criteria have been broadened to include more businesses. For 2021, businesses that experienced a decline of at least 20% in gross receipts compared to the same quarter in 2019 can qualify for the ERC. For businesses that were not in operation in 2019, the comparison is made to the corresponding quarter in 2020.
The expansion of the ERC means that more businesses can take advantage of this valuable support, which can help offset the costs of retaining employees and keeping operations running. The credit can be used to offset federal employment tax liabilities or claimed as an advance payment from the IRS.
It’s important for businesses to carefully review the ERC guidelines and consult with tax professionals to ensure they are in compliance and maximize their benefits. Additionally, it’s worth noting that businesses cannot claim the ERC if they also received a Paycheck Protection Program (PPP) loan, so it’s important to consider the implications of both programs.
As businesses navigate the ongoing challenges and uncertainties brought on by the pandemic, the employee retention credit remains a critical support option. By taking advantage of this lifeline, businesses can continue to keep their employees on payroll and contribute to the gradual recovery of the economy.