As small business owners have navigated the challenges of the COVID-19 pandemic, they have faced numerous hurdles in staying afloat. From forced closures to decreased foot traffic, many businesses have struggled to keep the lights on. One of the most significant challenges has been retaining valuable employees, as many small businesses have experienced difficulty in offering competitive compensation packages amid economic uncertainty. However, the employee retention tax credit (ERTC) could be a game changer for small businesses.
First established by the CARES Act in March 2020, the ERTC was further expanded and extended by the Consolidated Appropriations Act (CAA) in December of the same year. Under the provisions of the ERTC, businesses that experienced a decline in revenue due to the pandemic can receive a tax credit of up to $5,000 per employee annually. This credit is refundable, meaning that businesses that don’t owe taxes can still receive a cash benefit.
The goal of the ERTC is simple: to incentivize small businesses to keep their employees on payroll, even in the face of economic uncertainty. The ERTC works alongside other pandemic relief programs, such as the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL), to offer businesses an essential bridge to remain operational during these challenging times.
The ERTC has proven to be particularly impactful for small businesses in the service industry. Many restaurants, for example, experienced significant drops in revenue as states implemented strict capacity limits and social distancing measures. By offering financial relief for retaining employees, the ERTC has helped many small restaurants stay afloat and even expand their employee base to meet evolving needs.
Another significant benefit of the ERTC is that it encourages businesses to invest in their employees’ well-being. By offering a competitive work environment, many small businesses have been able to retain valuable employees even amid economic uncertainty. This not only benefits workers, who can access stable employment and competitive benefits but also is advantageous for businesses that can rely on a skilled workforce to continue growing.
Finally, small business owners should also be aware of the recent changes to the ERTC under the American Rescue Plan Act of 2021. Among other updates, the ARP increases the maximum credit amount per employee, expands eligibility for businesses that began operations after February 2020, and extends the ERTC until December 31, 2021.
In conclusion, the ERTC represents a vital lifeline for small businesses struggling to keep their doors open during the COVID-19 pandemic. By offering valuable financial relief for retaining employees, the ERTC incentivizes businesses to invest in their workforce and offer competitive compensation packages. As small businesses take advantage of this program, they can continue growing, offering critical services to their communities, and helping to rebuild the economy.