by Gil Gonzales
As an entrepreneur, you probably know that small businesses in the US are still reeling from the severe economic and financial impact of the coronavirus. For example, 97% of restaurant operators in the country reported that their aggregate dollar sales volume from April 10 to April 16 declined by 78% on average compared to the same period in 2019.
The pandemic impacted restaurants, bars, pubs, and entertainment venues the most. This is because apart from delivery services, they could not work remotely.
What is Employee Retention Tax Credit?
As an important part of the massive $2.2 trillion Coronavirus, Aid, Relief, and Economic Security (CARES) Act that Congress passed on March 27, 2020, eligible employers in the US can claim an Employee Retention Credit (CRC). The tax credit aims to help small businesses stay in business while keeping workers on the payroll.
The ERC is among the many government programs that have been implemented in order to provide relief to small businesses to ensure that the US economy can survive amidst the hardships triggered by the pandemic.
You will be happy to know that the ERC is a refundable tax credit. It provides 50 percent of up to $10,000 in qualified wages (i.e., up to $5,000 for each worker), including health plan expenses, paid from March 12, 2020, to January 1, 2021.
Eligible Employers
Note that there are two main groups of employers who can qualify for employee retention credit. The first group comprises businesses whose business operations in 2020 were fully or partially suspended because of government orders to restrain COVID-19, such as orders limiting commerce and travel.
The second group comprises businesses that have had a considerable decline in their gross receipts compared to 2019. While this includes tax-exempt employers, most self-employed individuals in the US are not eligible.
So, if you have less than 500 employees, and your total business receipts are 20 percent less than they were in 2019, you may be eligible for a payroll tax credit of up to $28,000 ($7,000 per quarter) for your employees.
Why Apply for Employee Retention Tax Credit
Did you know that many of the most affected industries in the US, such as retail, food service, and hospitality, tend to operate on razor-thin margins? The benefit of applying for the expanded ERC is that it can easily add up to 6 figures in order to help make up your lost margins.
It is worth noting that in 2021, eligible business owners can deduct up to 70 percent of up to $10,000 in qualified wages per quarter (paid per employee).
This is a significant bonus for many small businesses. Apart from using this credit to lower the employment tax your business needs to pay, if your business has less than 500 employees, you can also request an advance payment of this credit from the IRS. So, you can get the amount in cash if your tax credit is more than you owe on employment taxes.
Another important benefit of the ERC is that you can now use it in addition to your PPP loan. Business owners in the US who avoided the ERC in the past because they could not combine it with the PPP loan can now get the best of both worlds and maximize their savings.
Gil Gonzales' new book on Government Incentives is coming soon, with all the details on Tax Credits, Grants, Cash Reimbursements & Financing! It will be the ultimate "insider's guide to government funding for your small business." Visit www.gilgonzales.com to get notified when the book is available!
Gil Gonzales is a Senior Economic Development and Public Affairs professional with a 15-year track record serving in various strategic capacities within state and local government. At The Grady Firm, Mr. Gonzales helps clients with site selection, fast-tracking permits, incentive implementation, and deal negotiation. His unique knowledge of government offerings and relationships with government officials have helped him negotiate and implement federal, state, and local tax incentives and abatements that save clients substantial capital to use towards their new projects.
If you have any questions about Employee Retention Tax Credit, we encourage you to contact our office at info@gradyfirm.com, or call us at (949) 798-6298.
You can also book a call on our calendar at https://www.gradyfirm.com/schedule.
To learn more about ensuring your business is compliant with state and local laws, schedule a complimentary 15-minute consultation with The Grady Firm’s attorneys; call +1 (949) 798-6298; or fill out a Contact Request Form.
As outside counsel for growing and international companies with a presence in California, The Grady Firm attorneys provide the following services;
Site selection analysis and incentive negotiation for new businesses and offices in California;
Assistance with fast-track permitting
Assistance with interpreting emergency COVID-19 legislation as it affects your business;
Counsel employers on staff changes and draft Notices of Reduced Hours, Furloughs, or Layoffs;
Draft Severance Agreements;
Act as I-9 agent and I-9 audit preparation or defense;
Employee v. independent contractor classification analysis;
Assistance with converting independent contractors to employees;
On-site, classroom-style Sexual Harassment training for employees and supervisors;
“Experiential” supervisor training in which managerial employees practice processing a harassment complaint and commencing an investigation in pairs with other trainees.
Draft and review Employee Handbooks, arbitration agreements, and Anti-Harassment policies;
Employee personnel file audits;
Litigation/labor claim defense.
The firm’s attorneys are licensed to practice employment law in California.
This article is for informational purposes only, and does not constitute legal advice or create an attorney-client relationship. This article does not make any guarantees as to the outcome of a particular matter, as each matter has its own set of circumstances and must be evaluated individually by a licensed attorney.