As a company owner or operator, chances are, you are always looking for ways to be more efficient, generate revenue, and improve your bottom line. Typically, the focus is on marketing strategies, pricing, and cost-cutting. But have you ever considered how you can reduce your tax bill and generate revenue through employee retention tax credits? This means keeping your employees for longer periods so you can qualify for these credits. This win-win situation is beneficial to both the employer and employees, resulting in an increase in business growth and reduced overhead expenses.
What are employee retention tax Credits (ERTC)?
The Consolidated Appropriations Act of 2021 extends the employee retention tax credit (ERTC) through 2021. The ERTC is a refundable tax credit for businesses impacted by COVID-19. The ERTC is designed to encourage employers to retain their employees and prevent layoffs despite economic hardship caused by the pandemic.
Who Qualifies for ERTC?
Businesses where operations were fully or partially suspended due to COVID-19 or had a decline in gross receipts of 20% or more compared to the same quarter in 2019 qualify for the ERTC.
Benefits of ERTC to Business Owners
1. Reduction of tax Liability
The ERTC reduces your payroll tax liability by up to $7,000 per employee per quarter in 2021. Employers can take this credit as a refund on payroll taxes or as an advanced credit against future payroll tax payments.
2. Financial Flexibility
The ERTC offers financial flexibility by allowing employers to claim the credit retroactively for qualified wages and healthcare benefits paid between March 13, 2020, and December 31, 2021.
3. Investment in Workforce
By retaining employees, business owners can benefit from the skills and knowledge that come with longevity in a company. This translates to a well-trained and experienced workforce, which improves the quality of products and services offered.
How Employees Benefit
1. Job Security
With the pandemic affecting employment in different sectors, employees appreciate job security. ERTC assures job security and financial stability for them.
2. Increased employee Morale
Offering incentives like ERTC to retain employees boosts morale, encourages loyalty, and shows that their job is valued.
3. Training and Skills
Employers looking to qualify for ERTC need to retain their employees for longer. As a result, employees receive additional training and develop new skills, making them more attractive in their current job, potential future employment, and increasing their earning potential.
Conclusion
ERTC is a powerful tool for retaining employees, improving a company’s financial management, and reducing tax liability. With the pandemic still causing economic uncertainty, business owners should consider the credit program as a way to keep employees for longer periods while reducing their business expenses and benefiting from the experience of long-term workers. As with any tax program, it should be used strategically and with the help of professional tax advisors to ensure compliance and optimize its use.