As a business owner, it’s no secret that you’d like to keep your employees around for as long as possible. High turnover rates not only cost your business time and money, but they can also negatively impact your company’s reputation. However, with the COVID-19 pandemic leaving many businesses struggling financially, retaining employees may be more challenging than ever. That’s where the employee retention tax credit comes in.
The employee retention tax credit (ERTC) was introduced as a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. The purpose of the credit was to provide financial assistance to businesses that were impacted by the pandemic and help them retain their employees. However, many business owners are still unaware of this valuable tax credit and how it can benefit their companies.
The ERTC is a refundable tax credit that can be claimed by eligible employers. To be eligible, a business must meet one of two criteria: it must have experienced a partial or full suspension of operations due to a government order related to COVID-19, or it must have experienced a significant decline in gross receipts. Additionally, the credit applies to wages paid between March 2020 and December 2021.
The credit allows businesses to claim 50% of the qualifying wages paid to each employee, up to a maximum credit of $5,000 per employee. Qualifying wages include wages paid to employees who are not providing services due to a suspension of operations or a significant decline in gross receipts, as well as wages paid to employees who are still working.
Notably, the ERTC is available to businesses that have taken out Paycheck Protection Program (PPP) loans, but the same wages cannot be used for both the PPP loan forgiveness and ERTC. Essentially, businesses can’t receive both benefits from the same wages.
For business owners, the benefits of the ERTC are numerous. First and foremost, the credit helps businesses save money by reducing their tax liability. Second, it encourages employers to retain their employees by providing a financial incentive to do so. By retaining employees, businesses also save money on recruiting, onboarding, and training new employees. Finally, and perhaps most importantly, retaining employees for a longer period of time can lead to better customer satisfaction, higher morale among staff, and improved productivity.
In summary, the employee retention tax credit is a powerful tool that business owners should be taking advantage of if they’re eligible. By retaining employees during these difficult times, businesses can improve their financial situation, build a more loyal workforce, and ultimately emerge stronger than ever. Contact your tax professional to learn more about how the ERTC can help your business.