We are living in a time like nothing we have ever seen before. It seems that the entire world has been put on hold while scientists, doctors, and governments try to discover the answer to COVID-19. While everyone waits, most businesses have either been shut down or are desperately struggling to stay afloat.
There is not one person or business that has not been affected in some way. While the struggle is real, it is something that is shared, the effects of which no one has to carry alone.
We can only hope that when the virus is calmed and restrictions are lifted, the world will wake. People will come out of their homes, strong and resilient, ready to work together to rebuild the economic structures.
However, for most businesses, there is immediate damage and hardship. Closed businesses have led to lay offs, furloughs, and millions struggling to get by. Businesses are unable to pay employees and are also unable to pay their rent. One by one, we’ve seen business after business close their doors indefinitely, some voicing the permanency of their situation.
The Employee Retention Tax Credit
In order to soften the blow and the negative impact that COVID-19 has had on businesses, the government passed the CARES Act. Standing for the Coronavirus Aid, Relief, and Economic Security Act, there are numerous aspects that are intended to aid small businesses in this difficult and uncertain time.
One component of the CARES Act is the Employee Retention Tax Credit. The ERTC is supposed to incentivize businesses that have closed down or are operating minimally to keep their employees on their payroll instead of laying them off.
Keeping employees on the payroll provides a sense of stability for people, businesses, and the government. While the businesses may not be able to function normally, or at all, at this time, having them remain on the payroll offers hope.
Eligibility for the ERTC
The eligibility of businesses for the Employee Retention Tax Credit is not dependent on the size of the business. In fact, eligibility only depends on meeting at least one of these two requirements:
1. Business was suspended, whether full or in part, as a result of COVID-19 regulations that were mandated and enforced by the government. 2. Businesses whose revenue is slashed by at least 50% due to COVID-19 by comparing the same quarter a year ago.
It’s important to understand that if revenue increases to 80% the following quarter, your eligibility will end. Non-profit organizations that are looking to qualify will need to have had their operations fully or partially suspended.
While the CARES Act provides a number of useful options for small businesses, do note that they can’t all be used by one business. In fact, enrollment in the most popular portion of the CARES Act, the Paycheck Protection Plan, negates eligibility for the ERTC. Essentially, businesses that would qualify for both, will need to choose one or the other.
What does the ERTC offer for small businesses?
The Employee Retention Tax Credit is a tax credit that employers can receive that is worth 50% of the wages, including health benefits, that employees are paid, up to $10,000. The credit is for any pay that was given after March 12, 2020 and will be given before January 1, 2021.
While the size of the business doesn’t matter in terms of eligibility, it does determine which employees will count towards the tax credit. All employees count towards eligibility that have 100 or less full time employees. Eligibility goes to full-time employees who received wages but did not work during the eligibility quarter in businesses that have over 100 employees.
How to get the Employee Retention Tax Credit
The ERTC is a refundable tax credit which can be applied to the employer’s quarterly-reported payroll taxes. If your business takes out deposits of payroll taxes that would typically be withheld from employee’s wages, it can be reimbursed for the credit.
Employers can also report wages and costs of health insurance for all eligible quarters beginning with the second quarter in 2020. For companies whose employment tax deposits don’t cover the credit cost, advance payments from the IRS can be received by submitting Form 7200.
The Final Word
It’s a difficult time right now. Businesses are struggling. People are struggling. Yet there are options out there to help us all get through this time. The Employee Retention Tax Credit is one lifeline that can help keep your business afloat.
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Tom DiSilva has been providing professional human resource services for over 30 years. As the CEO of Navigate PEO, he actively partners with organizations of all sizes in the Greater New England area and across the country to help their businesses grow. He has expertise in HR and Labor Management, offering guidance and support for key areas of business such as negotiations, operations management, employee coaching, and employee benefits design.