By Lindsay Polyak, Partner
Tax Credit Collective
In 2020 and 2021, an astounding number of small businesses began feeling the impacts of government mandates around COVID-19 regulations. Unfortunately, small businesses took a major hit then and many are still feeling the ripple effects of those mandates two years later.
The silver lining (and perhaps the government’s way of rewarding employers for continuing to pay their people during hard times) is The Employee Retention Credit. Most likely you have heard the words “employee retention credit” or “ERC” floating around. The good news is your business may qualify and you still have time to claim this credit!
As a firm whose sole mission is to assist small businesses in claiming specialized government incentives, we want to break down the ERC to answer questions you may have:
What is the ERC?
In an effort to help businesses retain employees and keep them employed during the COVID-19 crisis, the (CARES) Act created the Employee Retention Credit (ERC) for 2020 and later legislation extended it through 2021. The ERC is a refundable payroll tax credit for “qualified wages” that were paid to retained employees between March 13, 2020 and September 30, 2021. It is still retroactively available to many businesses.
Who qualifies for this credit?
- Any business that was impacted by a partial or full shut down due to government orders/mandates during 2020 OR any business that saw a 50% reduction in gross receipts during any 2020 calendar quarter, as compared with the same quarter in 2019 OR
- Any business that saw a 20% reduction in gross receipts during quarters 1-3 in 2021 as compared with the corresponding calendar quarters in 2019 OR
- Any business that was impacted by supply chain issues related to port closures, mandated shutdowns, inability to obtain supplies, parts, etc.
- Types of Businesses that frequently qualify: Service businesses, marketing firms, medical practices, dental practices, med spas, restaurants, nonprofits, retail or wholesale, hotels, assisted living facilities, oil & gas, manufacturers, travel-related businesses, construction firms, and more.
What’s the potential value?
The Employee Retention Credit is cash back to the business from the government which has a maximum value of $26,000 per employee retained during qualifying periods.
What if I got a PPP loan?
Most of our clients received PPP loans. Employee Retention Credits must be calculated with wages paid to employees not using PPP funds (i.e. before PPP loans were funded and after the forgiveness period[s] ended).
How can I claim this credit for my business?
The ERC can be a complicated tax credit with rules about no-double dipping into other incentives. Each business wanting to evaluate the ERC deserves a thorough 3 phase process by a tax credit expert:
- Phase 1- Determining eligibility and calculating the amount of credits available by quarter; (Tax Credit Collective does this at no charge.)
- Phase 2- Finalizing the credit calculation and amending the quarterly payroll tax returns (941s) for eligible quarters;
- Phase 3- Providing audit defense if and when the IRS questions a taxpayer’s claim of the IRS.
In summary, the Employee Retention Credit has provided billions of dollars of relief for small businesses, and your business may still have an opportunity to benefit from these tax credits. It’s complicated and time-consuming and has an audit risk associated with it, so it bears a comprehensive analysis by a firm with expertise in tax credits and incentives.
Lindsay can be reached at lindsay@taxcreditcollective.com or 833-346-2368