Improving Cash Flow and Retaining Talented Workers: How to Successfully Apply for employee retention tax credit
Small businesses have been hit hard by the COVID-19 pandemic, with many forced to shut down or operate at reduced capacity. Even those that have managed to stay open may be struggling with cash flow and retaining their talented employees. However, there is a potential solution: the employee retention tax credit (ERTC).
What is the employee retention tax credit?
The ERTC is a refundable tax credit that is designed to encourage small businesses to keep their employees on payroll during the pandemic. It was created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and has since been extended and expanded under subsequent legislation.
How does it work?
Eligible employers can receive a tax credit of up to 70% of qualifying wages paid to each employee, up to a maximum of $7,000 per employee per quarter. To be eligible, the employer must have experienced a significant decline in revenue due to the pandemic.
Who is eligible?
There are two main categories of eligible employers:
1. Businesses that were fully or partially suspended due to a government order related to COVID-19
2. Businesses that experienced a significant decline in gross receipts. Specifically, eligible employers must have experienced a decline of at least 20% in gross receipts in any quarter in 2020, compared to the same quarter in 2019. For 2021, the threshold has been lowered to a decline of at least 20% in any quarter compared to the same quarter in 2019.
How can I apply?
Employers can claim the credit by filing Form 941, the quarterly payroll tax return. If the credit exceeds the employer’s payroll tax liability, they can receive a refund for the excess amount.
It’s important to note that employers cannot claim both the ERTC and the Paycheck Protection Program (PPP) loan forgiveness for the same wages. However, employers may use the ERTC for wages that are not included in the forgiveness amount of a PPP loan.
Why should I apply?
The ERTC is a valuable resource for small businesses struggling to maintain cash flow and retain talented workers. By providing financial support for retaining employees, the credit can help businesses weather the pandemic and prepare for a stronger recovery in the future.
Retaining talented employees is also critical for long-term success. Losing experienced workers can be costly and disruptive, and finding and training new workers can be a time-consuming and expensive process. By using the ERTC to keep their valued employees on payroll, small businesses can position themselves for success in the coming years.
In conclusion, the employee retention tax credit is a valuable resource for small businesses struggling with cash flow and employee retention during the pandemic. By carefully evaluating eligibility and following the appropriate procedures, small business owners can take advantage of this valuable credit and position themselves for long-term success.