Small businesses are the backbone of the American economy, accounting for nearly half of all private sector employment. However, these businesses often face a major challenge in retaining employees. The employee retention tax credit (ERTC) is a game-changer for small businesses looking to retain their employees.
What is the employee retention tax credit?
The ERTC is a tax credit that was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The credit is designed to provide an incentive for businesses to retain their employees during the COVID-19 pandemic. It is worth up to $5,000 per employee for 2020, and up to $28,000 per employee for 2021.
How does it work?
To qualify for the ERTC, small businesses must have experienced a significant decline in revenue due to the pandemic. Specifically, businesses must have experienced either:
– A 50% decline in gross receipts in a quarter compared to the same quarter in 2019, or
– A full or partial suspension of operations due to a government order related to COVID-19.
If a business meets these criteria, it can claim the ERTC for wages paid to eligible employees. These include full-time and part-time employees, as well as some family members of the business owner.
Why is it a game-changer for small businesses?
The ERTC is a game-changer for small businesses for a few reasons:
1. It provides immediate financial relief.
Small businesses are often cash-strapped and may struggle to continue paying their employees during a crisis. The ERTC provides an immediate financial boost by providing a tax credit for wages paid. This can help small businesses stay afloat and retain their employees during tough times.
2. It incentivizes employee retention.
The ERTC provides a financial incentive for small businesses to retain their employees. This can help these businesses maintain their workforce, even when revenue is down. By retaining their employees, small businesses can be better positioned to recover once the pandemic is over.
3. It helps level the playing field.
Small businesses often face stiff competition from larger corporations with deep pockets. The ERTC helps level the playing field by providing small businesses with a tax credit that can be used to retain employees. This can help small businesses stay competitive and retain their best talent.
In conclusion, the employee retention tax credit is a game-changer for small businesses looking to retain their employees. It provides immediate financial relief, incentivizes employee retention, and helps level the playing field. Small businesses that are facing financial hardships due to the pandemic should consider taking advantage of this valuable tax credit.