In the wake of the COVID-19 pandemic, small businesses across the country are struggling to stay afloat. The economic downturn has left many employers wondering how to keep their businesses running and their employees on payroll. Luckily, there are several tax credit programs available to small business owners that can help alleviate some of the financial strain. One such program is the employee retention tax credit (ERTC).
What is the employee retention tax credit?
The ERTC was created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help small businesses keep their employees on payroll during the COVID-19 crisis. The credit is equal to 50% of qualified wages paid to employees, up to $10,000 per employee, for a total credit of up to $5,000 per employee.
To be eligible for the ERTC, employers must meet certain criteria. First, the business must have been partially or fully suspended due to COVID-19, or have experienced a significant decline in revenue. Second, the business must have had an average of 500 or fewer full-time employees during 2019.
How can the ERTC help small businesses?
The ERTC can provide a significant source of relief for small businesses struggling to stay open during the pandemic. By reducing the cost of keeping employees on payroll, the credit can help small businesses maintain their workforce and avoid layoffs. Additionally, the credit can provide some much-needed cash flow for small businesses, allowing them to reinvest in their operations and continue to serve their customers.
The ERTC does not require employers to take out a loan, and the credit can be claimed even if the business has already received a Paycheck Protection Program (PPP) loan. This means that small businesses can utilize both programs to help get through these challenging times.
How can small businesses claim the ERTC?
To claim the ERTC, employers must file Form 941, Employer’s Quarterly Federal tax Return, and report the amount of the credit on Line 11c. Employers can then reduce their payroll tax deposits by the amount of the credit.
If the amount of the credit exceeds the employer’s payroll tax liability, the excess can be refunded. Alternatively, small businesses can request an advance payment of the credit by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
In conclusion, the employee retention tax credit can be a valuable resource for small businesses struggling to stay afloat during the COVID-19 pandemic. By reducing the cost of keeping employees on payroll, the credit can help small businesses maintain their workforce and continue to serve their customers. To take advantage of the ERTC, small businesses should consult with their tax professional and stay up-to-date on the latest guidance from the IRS.