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employee retention credit (ERC)

What Is the Employee Retention Credit?

Over the past year, Washington has put together a number of initiatives meant to keep Americans employed. While not the most recognizable one, the Employee Retention Credit (ERC) is a useful one – and U.S. small businesses can still take advantage of it.

Back in December, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 – which most of us simply know as the second stimulus program – extended and/or modified various programs and other benefits made available under the first stimulus program: the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

That included extending the ERC out another six months, through June 2021, and making some adjustments.

So, what is the Employee Retention Credit, and how can it help your small business?

The Employee Retention Credit

The ERC allows eligible employers to claim a refundable tax credit against its share of Social Security taxes. This credit is equal to 70% of qualified wages paid to employees between Jan. 1, 2021 and June 30, 2021.

Because the 2021 limit for qualified wages is $10,000 per employee per quarter, employers can receive a maximum credit of $7,000 per employee per quarter, or $14,000 through the first half of 2021.

Eligibility

Unlike several of the other business relief initiatives passed by Congress of late, the Employee Retention Credit is not exclusive to small businesses. The IRS says that to be eligible for the ERC, employers must operate a trade or business between Jan. 1, 2021, and June 30, 2021, and experience either:

  • “A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19,” or
  • “A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019 (to be eligible based on a decline in gross receipts in 2020 the gross receipts were required to be less than 50%).”

The IRS does make some exceptions. For instance, if your business did not exist in 2019, you can use the corresponding quarter in 2020 to measure gross receipts.

Small businesses do have one advantage, however. All employers can access the ERC for the first two quarters of 2021 before filing employment tax returns by reducing employment tax deposits. However, employers with 500 or fewer full-time employees in 2019 can request advance payment of the credit on Form 7200 after reducing deposits.

Still Getting Back on Your Feet?

Many small businesses are struggling to get back to 100%. We understand – and we can help. McManamon & Co., a wide-ranging business services firm specializing in small and midsized firms, offers professional consulting where we can help you better understand whether your small business qualifies for a variety of business loans, grants and other funds.

Don’t miss out on critical funds your business could use to stay afloat. Call McManamon at 440.892.9088 or contact us online today!

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