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!