In a post-pandemic world, the economic ratifications continue to linger and affect today’s business operations. Fortunately, the government offers financial incentives to boost recovery efforts. One of these incentives is an employee retention credit (ERC), which is a tax credit. Although this was discontinued in 2021, the innate nature of being a tax credit means it can retroactively compensate when filing for 2020 and 2021 taxes. But who is eligible to claim ERC’s?
Virtually any business who has seen the constriction of business or financial impacts of the pandemic can claim. One way is proving you are a U.S. business who can prove a significant financial decrease between 2019 and 2020/2021 via gross receipts. Another method is to show the constriction of business operations, which is left vague to account for multiple types of business. A couple of non-exhaustive examples include reduction in business hours, supply chain closures, or suspensions of certain business services. Finally, for newer businesses, qualifying as a Recovery Startup Business in quarter 3 or 4 of 2021 automatically qualifies you for ERC’s.
The benefits of claiming an employee retention credit are invaluable to business owners affected by the lockdown or COVID-19 itself. While it varies depending on the number of full-time employees, you are able to claim up to $26,000. This is broken down as $5,000 to cover March 12th to December 31st in 2019, and another $7,000 per quarter of 2021 for 3 quarters. Furthermore, any cash payments and employer provided health care costs are applicable and will be compensated by ERC’s. Even if you took out a Paycheck Protection Program (PPP) loan, which a struggling business owner might do, you are not excluded from claiming ERC’s. Ultimately, this is a fantastic opportunity for business owners, and there is no reason to not take advantage of this tax credit.