2020 was a year of change and adaptation. Small businesses struggled and modified their operations to protect their communities and employees. We all understand that it was a challenging time, but now we face the challenge of creating a “new normal”. As a small business, the changes of 2020 might still be felt in their operations and finances, but luckily the Employee Retention Credit may be here to help..
For those who don’t know what we are talking about, here is the most essential information about it. The Employee Retention Credit is a refundable tax credit created to motivate businesses to keep employees in their payroll. Unlike a loan, this tax credit does not need to be repaid. It can be applied for wages paid after March 12, 2020 through June 30, 2021. With this credit, employers can claim 50% – 70% of up to $10,000 of wages per employee. The percentage of the claim is determined depending if the wages were paid in 2020 or 2021.
Businesses of any size can claim the Employee Retention Credit as long as they have been financially affected by the measures taken to protect communities from COVID-19. In order to be eligible to apply, they must demonstrate that their operations were partially or fully suspended or that their gross receipts are less than 50% of those of the same quarter from 2019. In the case of the credit for 2021, the gross receipt must be less than 80% compared to that of the same quarter in 2019.
Previously, the Employee Retention Credit was not an option for businesses with a PPP Loan, business owners were supposed to choose between one of them. However, with the purpose of aiding businesses recovering from COVID-19, this restriction was lifted last year. The one restriction that still applies is that if a business applies for the credit, they are not allowed to count the same wages for both the PPP Loan and the Employee Retention Credit.
We hope that this information was helpful to you and your small business. All the information here is the basics of what we know about the Employee Retention Credit as of today, but there is a chance that the IRS will release more details about this credit in 2021. When we know, we will let you know. If you still have questions about this credit and other financing options available for small businesses recovering from COVID-19, you can reach out and schedule a meeting with one of our consultants. Remember, the first consultation is on us!
Access Capital is a financial consulting company with over 20 years of experience in the financial industry of California. It focuses on helping small businesses grow through their services that include financial consulting and advising, small business loan processing, digital marketing, business coaching, and accounting & management. For more information go to accesscapital.org.