The employee retention credit (ERC) is a tax credit provided by the US government to help small businesses keep their employees on payroll during the COVID-19 pandemic. The ERC was created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and was extended and expanded under subsequent legislation.
The ERC is available to eligible employers who have experienced a significant decline in gross receipts or who have been fully or partially suspended due to a government order related to COVID-19. The credit is equal to a percentage of qualified wages paid to employees during the applicable period.
For the first two quarters of 2021, eligible employers can claim a credit of up to 70% of qualified wages, up to a maximum credit of $7,000 per employee per quarter. This means that an eligible employer can receive a maximum credit of $14,000 per employee for the first two quarters of 2021.
The ERC is a refundable credit, which means that if the amount of the credit exceeds the employer’s payroll tax liability, the excess credit is refunded to the employer. The credit can be claimed on Form 941, the quarterly payroll tax return.
Here are some ways in which the ERC law benefits small businesses:
- Financial assistance: The ERC law provides eligible employers with a refundable tax credit equal to a percentage of qualified wages paid to employees. This credit can help small businesses offset the cost of keeping employees on payroll during a period of reduced revenue or operations.
- Flexibility: Small businesses can use the ERC to keep employees on payroll, even if they are not able to work due to government-mandated closures or reduced operations. The credit can also be used to cover the cost of providing health benefits to employees.
- Expanded eligibility: The ERC law was expanded under the Consolidated Appropriations Act of 2021 to include more small businesses. For example, businesses that received a Paycheck Protection Program (PPP) loan may now be eligible for the ERC as well.
- Increased credit amounts: The ERC law also increased the credit amounts available to eligible employers. The credit can now be up to 70% of qualified wages, up to a maximum credit of $28,000 per employee.
At ERC Straight Line, our foremost priority is to offer unparalleled service and support to our clients. We take pride in our unwavering commitment to our clients and continuously endeavor to achieve the utmost level of customer contentment. We acknowledge the distinctiveness of every business and therefore, provide customized solutions that are tailored to meet your individual requirements.
Overall, the employee retention credit law can provide much-needed financial assistance and flexibility to small businesses struggling to keep their employees on payroll during the COVID-19 pandemic. Small businesses should consult with their tax advisors to determine if they are eligible for the ERC and how much credit they can claim.
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