In these current times, companies across the United States are experiencing difficulties in maintaining their workforce. This has largely been brought on by the economic fallout of the COVID-19 crisis. As a way of supporting businesses in retaining their employees, the federal government has implemented the employee retention tax credit (ERTC). This incentive provides businesses with a sizable tax credit on their payroll taxes, and can lead to a significant boost to their bottom line.
The ERTC was introduced in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed by Congress in March 2020. The aim was to give businesses a way to keep as many workers on-board as possible, minimizing the impact of the pandemic on the employment market. Companies that are considered eligible can receive a credit of up to $5,000 per employee which can help offset the losses that many are experiencing due to reduced revenue streams.
To qualify for ERTC, a company needs to satisfy one of two criteria: either it must have suffered a significant drop in business compared to the previous year, or it must be considered a ‘business that fully or partially closed due to government-mandated restrictions arising from COVID’. This ensures that the credit is focused on the most affected areas of the economy, while incentivizing businesses to seek alternatives where possible.
Another significant advantage of the ERTC is that it applies retrospectively from March 12, 2020. This means companies with previous layoffs, furloughs, or pay cuts may still claim the credit. This reduction of previous payroll costs may also make the business resources available for future operations.
The ERTC helps businesses to improve their bottom line while ensuring that layoffs are kept to a minimum. But there are additional benefits to retaining employees, besides avoiding recruitment costs of hiring new employees. Experienced employees tend to hit the ground running when they return, and companies save valuable time spent training new hires. In addition, retaining employees can result in greater stability which can lead to stronger relationships with customers and suppliers alike.
In conclusion, the employee retention tax credit (ERTC) can be an important tool that helps companies navigate the current economic conditions. The credit has been designed to incentivize businesses to keep experienced employees by making their payroll tax more affordable. Business leaders searching for ways to stay competitive should carefully consider this incentive as a means of keeping their workforce strong through difficult times. In doing so, they can maintain a sense of stability while achieving meaningful impact from their tax-credits claims.