ERC (employee retention credit), a government grant, was made available through the CARES (Coronavirus Aid, Relief and Economic Security) Act to help organizations that were significantly affected by the pandemic get monetary help from the IRS for retaining their staff in 2020 and 2021. It comes with multiple rewards that were hit hard by the effects of COVID-19. Discussed below are five benefits of ERC for business owners.
Improved cash flow
The pandemic left most businesses, small and large alike struggling financially. Without proper cash flow, companies find it hard to keep up with daily operations. Luckily, organizations that saw a significant drop in revenue and were negatively impacted by government orders are eligible for ERC and can claim a refund.
The maximum credit for each employee for the whole of 2020 is $5,000, while for each quarter of 2021 is $7,000, totaling $21,000 for that entire year, translating to businesses receiving up to $26,000 per employee. This lowers the financial burden and balances business payroll costs, improving cash flow and helping companies with expense management. Check your business's eligibility for this tax credit and fill out your ERC application to take advantage of this refund.
Businesses can qualify for ERC even if they got PPP funds
There’s a misconception that businesses can’t qualify for ERC if they’ve already received PPP funds. Nonetheless, that isn’t always the case because it depends on specific eligibility criteria and needs careful evaluation of these two programs. A 2021 legislation change allows businesses that got PPP funds to claim ERC, meaning companies can claim tax credits for wages not covered by the PPP loan.
This proved quite beneficial for business owners by giving them the financial aid required to remain afloat. Since navigating the ERC program and the PPC loan can be challenging, hiring a skilled tax professional can help maximize both program benefits.
The ERC offsets employer’s Social Security tax liability
Using the credit refund, businesses eligible for ERC can offset payroll taxes dollar-for-dollar that they would otherwise have to deposit with the IRS. ERC’s refundable nature means that if the available credit is more than your liability (employer) for qualified payroll taxes, the credit will create an overpayment that you can get a refund from the IRS. Note that the credit doesn’t impact employees’ Social Security share of taxes.
Business owners can claim tax credit for several employees
The ERC is open to businesses of all sizes, meaning all of them can claim tax credits for varying employee numbers. This means large and small organizations aren't treated the same. For 2020, businesses with over 100 full-time staff in 2019 can only claim pay for employees they retained but weren't working.
Companies that had less than 100 employees can claim for all of them regardless of whether they worked or not. The 2021 threshold was increased to 500 full-time employees for 2019. Claiming ERC for several employees means more funds for your businesses, which are critical for success and expansion.
Boost employee morale
Most businesses laid off employees owing to the economic effects of COVID-19. The introduction of the ERC program meant business owners could keep their workers on the payroll. This resulted in organizations maintaining continuity and stability in the workforce, boosting employee morale and productivity.
Endnote
The ERC comes in handy for businesses that suffered due to the effects of the coronavirus pandemic. Familiarize yourself with the benefits your business can reap by claiming the ERC refund.
