As 2021 continues to present businesses with new challenges, small business owners are always on the lookout for ways to retain their employees amidst the constant economic uncertainty. Enter the employee retention tax credit (ERTC), a federal tax credit designed to encourage businesses to keep their current employees on payroll as they rebound from the financial impact of the COVID-19 pandemic.
So what makes the ERTC such a game-changer for small business owners in 2021? For starters, this tax credit can help businesses with cash flow during what may be their toughest financial times. The credit will enable businesses to keep more of their hard-earned money and reinvest it into their operations, like retaining or hiring employees, investing in new technology, or expanding their services.
But why choose the ERTC over other forms of financial assistance? There are a few key reasons. Unlike PPP loans, which are forgivable only if you meet certain criteria in terms of employee retention and payroll, the ERTC can be used by businesses who have already used up their PPP funds or who did not qualify for the program. Additionally, while PPP loans were popular choices for businesses during the early months of the pandemic, many business owners have found repaying those loans to be an impractical burden.
Another unique advantage of the ERTC is that it can help businesses of all sizes. Previously, the tax code for employers was more favorable for big businesses than for small businesses when it came to payroll taxes. With the ERTC, small business owners now have access to the same tax advantages that larger businesses have enjoyed for years.
So, how does the ERTC work, exactly? The tax credit applies to businesses that have experienced significant losses due to COVID-19, either in reduced revenue or through a temporary suspension of business operations. The credit is equal to 70% of the first $10,000 in qualified wages per employee per quarter, making the maximum credit $7,000 per employee per quarter. Eligible businesses then subtract the ERTC from their Social Security payroll tax deposits or request a refund from the IRS if the credit exceeds the business’s payroll tax liability.
Furthermore, the ERTC is now available to businesses until December 31, 2021 (previously it was only available until June 30, 2021). This means small business owners now have a longer period of time to benefit from the tax credit and invest that money back into their business’ growth and sustainability.
In conclusion, the ERTC can be a game-changer for small business owners in 2021 by providing a direct avenue for these businesses to retain their current employees during a tough financial climate while allowing them to continue growing their businesses. With the deadline now extended to the end of the year, small business owners should take advantage of the program as part of their recovery strategy.