As we begin 2022, I’ve been meeting and checking in with many small businesses around Minnesota, some of those businesses are thriving, and unfortunately, some businesses are still reeling from the negative side effects brought on by the pandemic. There are positives and negatives in this story, but I hope like me, you can try to focus on the brighter side of things.
The positive that I want to focus on today: The Employee Retention Credit (ERC).
During my recent conversations, I have been surprised to learn just how many local businesses are not taking advantage of this huge tax credit that is provided by the Federal government. Unfamiliar with the ERC? Here are the basics:
- The ERC is a federal tax credit that helps financially-impacted businesses pay their employees via refundable employment tax credits.
- In nature, the ERC is meant as an incentive to help businesses retain and keep their jobs and employees, while also allowing the business to continue to grow. The ERC also serves as a support tool for businesses that were finding a way to thrive in the pandemic.
What does the ERC offer to eligible employers? (per KPMG)
- 50% of qualified wages (including qualified health plan expenses) paid to each employee
- $10,000 in maximum wages; therefore, maximum credit is $5,000 per employee
- 70% of qualified wages (including qualified health plan expenses) paid to each employee
- $10,000 in maximum wages for Q1-Q3 in 2021; therefore, the maximum credit is $21,000 per employee
Are you eligible?
Good question – and it might take some digging to find out, but it is totally worth it if your business turns out to be eligible. Per the IRS, the original requirements were as follows:
Eligible Employers that are entitled to claim the Employee Retention Credit are private-sector businesses and tax-exempt organizations that carry on a trade or business during the calendar year 2020 and either:
- Have operations that were fully or partially suspended during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
- Experienced a significant decline in gross receipts during the calendar quarter.
However, these were the requirements at the start of the ERC program, since then, the Federal government has adjusted the criteria and expanded the number of businesses that are eligible. To find out if your business is eligible, contact your CPA for more information. If you wanted to do a little digging on your own, you can find the answers to most eligibility questions at https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-determining-which-employers-are-eligible-to-claim-the-employee-retention-credit-faqs .
Give it a look and let us know what you find out. We’re interested in finding every avenue we can to help support our local businesses.