What is an Employee Retention Credit and How Does it Work?

What is an Employee Retention Credit and How Does it Work?

Running and growing a small business effectively is a challenge in the best of circumstances, but when the Covid-19 pandemic hit, it sent many small businesses reeling from the loss of revenue. Many even ended up having to shut their doors permanently. When the federal government saw the impact pandemic-related closures were having on small businesses, they introduced and passed legislation for an Employee Retention Credit (ERC) program to try and offset some of the hardships.

The ERC was designed to be a measure that was established to help small businesses weather the storm of Covid-related shutdowns and the associated hardships and still keep their workers employed. The Employee Retention Credit program qualifies businesses who meet the required guidelines for a reduction in their federal employment tax deposits. These businesses may also request tax credit advances to help offset amounts that are not handled by the employment tax deposits.

Originally the ERC was only available to companies that employed 100 or fewer full-time or full-time equivalent employees, but thankfully, the program has undergone several revisions that have made its benefits available to more employers. One of the largest shifts from the original program is that now businesses who received a PPP loan can apply for ERC.

The Employee Retention Credit has encouraged many small businesses to maintain their staffing even when the pandemic has required them to cease operations. Without the ERC, thousands of employees would have been left jobless.

Businesses that are eligible for this tax credit can access the money immediately by reducing the amount of the employment tax deposits they must make or by requesting an advance for allocated credit funds from the IRS to give them the cash flow they need to keep paying their workers. The amount of ERC funds that a business can receive is based on the number of workers employed by a business and their associated salary and healthcare costs.

The most modern version of the Employee Retention Credit guidelines that were set for in the American Rescue Plan dictates that now businesses with 500 or fewer full-time or FTE employees can qualify for this assistance if the business continues to be fully or partially shut down due to pandemic-related orders or supply chain disruptions. Additionally, if a small business has seen a decline of more than 20% in their gross quarterly receipts, they may apply.

With the latest version of this legislation, small businesses may receive a70% credit for each employee’s wages up to $10,000 per quarter. Additionally, if an employee was furloughed, but the business continued to pay pre-tax health benefits, the paid benefit now qualifies as an allowable health expense for the ERC’s calculation purposes.

We know that all the rules and regulations to get your small business qualified under the ERC program can seem confusing, but we are here to help. Reach out to the experts at Seek Business Capital today to get your small business the cash you deserve today!

Which Businesses Are Eligible for the ERC?

Which Businesses Are Eligible for the ERC?

If you are a small business owner, by now we are sure that you are probably feeling overwhelmed and completely drained. 2020 was an immensely difficult year for companies large and small across the globe, and 2021 hasn’t been a cakewalk either. Pandemic-related closures have rocked the foundations of many small businesses, sadly forcing some to shutter their doors permanently. For those who have stayed afloat, managing operational challenges has been unpredictable at best.

Federal, state, and local mandates and guidance continually evolve. What is permissible one week is no longer allowed the next. Surges come and go, and stability feels like a long-lost memory. The federal government has introduced and passed several acts of legislation designed to help out small business owners including PPP and loan forgiveness, but one of the most helpful has been the Employee Retention Credit or ERC.

Just like everything else during this pandemic, the ERC guidelines can prove to be a bit confusing to navigate, but we hope to clear up some of the confusion regarding which businesses are eligible for this credit. Keep reading to find out.

Although the ERC guidelines are numerous, the relief that it can provide for an ailing small business is well worth the effort. Over the course of the last year, many revisions have been made to the eligibility requirements, making this credit available to more small businesses than ever before. In short, ERC is a refundable tax credit that reimburses employers for specified employment taxes because of pandemic-related financial difficulties.

In order for your business to be eligible for the current 2021 ERC relief, you must employ less than 500 full-time or full-time equivalent employees. If this is you, now you must look at comparing your Q1 earnings from 2021 to your Q1 earnings in 2019. If you have earned less than 80% of what you made in 2019, you should be eligible for ERC.

So, what does eligibility get you? It gets you up to 70% reimbursement on eligible wage expenses up to $10,000 for each of your employees per quarter. That means you could receive up to $28,000 for every full-time staff member over a year. That is quite a big help for many smaller companies who do not tend to have the financial reserves to survive long periods of shutdown without completely laying off their employees.

We should mention that there are a few exceptions to ERC qualifications that you should be aware of:

  • Employees with a 50% or greater ownership in the company are ineligible for ERC.
  • Employees who are family are ineligible to receive ERC compensation.
  • No double-dipping is allowed.
    • Wages that are counted toward the Families First Coronavirus Response Act (FFCRA) or PPP credits are not eligible to be counted as ERC allowable wages.

The good news is that the knowledgeable team at Seek Business Capital is extremely well-versed in the ins and outs of ERC eligibility. We are ready to help you through the application process so you can get the financial help you need to keep your business going strong now and into the future.

Who is Eligible for Employee Retention Credit?

Who is Eligible for Employee Retention Credit?

The Covid-19 pandemic that started back in 2020 has changed nearly every facet of our lives. Our day-to-day activities look different. Schooling looks different, and there is no doubt that the business and economic landscapes have changed dramatically. With worldwide mandatory business closures and supply chain disruptions, it seems that no sector of business and industry was left untouched.

With this massive upheaval in normal operations, numerous businesses were sent scrambling for lifelines to stay afloat. This is especially true for small businesses that do not tend to have the resources to weather such a storm that does not seem to be subsiding any time soon. Seeing the struggles that companies were facing, the federal government intervened with legislation offering the Employee Retention Credit Program or ERC.

The ERC was designed to help give cash flow to small businesses that were affected by pandemic closure orders and supply chain disruptions, thus allowing them to pay their employees even if they were shut down. The most recent version of the ERC program revisions opens up eligibility to far more small businesses than the original version. Let’s take a look at who is now eligible for this Employee Retention Credit.

The first requirement is that a business must have fewer than 500 full-time or full-time equivalent (FTE) employees. Companies with larger payrolls than those are ineligible for the ERC. If your business meets the employee requirement and was in business before February of 2020, the next factor that will be considered is any mandatory shutdowns that were a result of the pandemic. If this was the case, then it is likely that the company will qualify for this credit.

If your business operations were not suspended due to Covid-19 closures, you may still be eligible for the ERC. To determine if this is the case, you will need to dig into your quarterly earnings summary. For the 2021 tax year, a company will be eligible for the ERC if they experienced a 20% or greater decline in the gross receipts from the same quarter in 2019.

You may be wondering what this means for operations that were not around in 2019. There is good news. These startups may qualify for the Employee Retention Credit under the CARES Act. With CARES Act guidelines, eligibility can be examined using data from the calendar quarter immediately preceding the current quarter.

Another positive to the newest version of ERC rules is that if a small business qualifies for the credit in a quarter, they also are eligible to receive this credit in the following quarter regardless of if they meet the eligibility ratios in that quarter.

There is no doubt that the Employee Retention Credit has been the saving grace for many small businesses and their employees, allowing them to keep making payroll and maintaining their operations to the best of their ability.

We also know that applying for this credit and deciphering the eligibility requirements can be a somewhat confusing process. This is why the professional team at Seek Business Capital is ready and waiting to help you and your small business apply for the ERC to get the money you need quickly and efficiently. You don’t have to go it alone. Call us today!