The CARES Act of 2020 unlocked several COVID-19 benefits for small business owners.
One of the CARES packages keeping local ventures afloat is the employee retention credit program. This benefit lets employers claim tax credits to keep their employees on staff.
CNBC reports over 30,000 small businesses have already claimed ERC credits, awarding more than a million dollars in relief.
Yet, how does the ERC program work? How much can you claim, and who’s eligible?
Get the facts in this quick starter guide.
1. What Is Employee Retention Credit?
Enacted in 2020, the ERC program incentivizes businesses to keep staff on the payroll during economic crises. The benefit also applies to companies that aren’t open during health emergencies.
The most recent version of the ERC provision allows employers to claim:
- $5K in tax credits for each full-time staff member retained between March and December of 2020.
- $1K in ERC credits for every worker kept between January and June of 2021.
However, these facts beg the question: is the employee retention tax credit benefit over?
One may presume the program is coming to a close as Covid-19 vaccination increases, mandates loosen, and more companies go back to business as usual.
However, ERC Today points out that ERC credits weren’t widely available until march of 2021. Thus, employers still have time to take advantage of retention credits and payroll protection benefits.
Even better, applicants can potentially receive $28,000 in tax credits per staff member annually.
So, how do you get started?
2. Who Is Eligible for ERC Credits?
Your first step is to determine ERC eligibility.
Qualifying employers must prove the following:
- Your company was ordered to completely or partially shut down
- Your annual gross income was 50% lower than the previous year’s quarter
New businesses that opened in 2020 can still claim ERC credits. However, it’s important to watch this CARES act provision closely. Eligibility will tighten as the economy improves.
For example, to get retention credits next year, you’ll have to prove your gross totals were 80% below normal.
Don’t forget! The newest provision is retroactive for paycheck protection plan (PPP) borrowers. If you received a PPP loan back in march of 2020, you could still apply for ERC credits.
3. How to Apply for Your Employee Retention Credit
Like other tax credit programs, you must file the appropriate paperwork to receive your credits. Of course, you can speed up the process by filing online as early as possible.
Make sure you have the proper 941-X tax form to receive your credit. Your business accountant can also handle the paperwork for you.
Report all qualifying wages on the form, including related insurance costs per employee.
Keep Your Business Afloat With More Tax Credits
Great news! There’s still time to claim your employee retention credit, even if you have a PPP loan.
Call your accountant right now, or get started on form 941 yourself. Ensure you meet all eligibility requirements by reviewing the latest CARES act provisions.
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