With the pressing concerns of the global pandemic and the economic recession that followed, organizations around the world found themselves in a tight spot financially. To mitigate these crisis conditions and to retain the workforce, the government introduced several stimuli amongst which the Employee Retention Tax Credit (ERTC) held significant importance. Herein, we will discuss the reasons why your business should leverage this policy with due diligence.
Understanding the Employee Retention Tax Credit
The ERTC is a refundable tax credit against certain employment taxes. It was initially introduced as part of the CARES Act in March 2020, with revisions and extensions under the Consolidated Appropriations Act and the American Rescue Plan Act in 2021. The motive behind this credit is to encourage businesses to keep their employees on the payroll, even if they cannot currently work owing to the impact of COVID-19.
The Benefits of ERTC to Businesses
Two significant benefits can be drawn from the ERTC:
- An immediate source of liquidity: Eligible businesses can reduce federal tax deposits currently owed, get an immediate refund on overpayments, and request advance credit on Form 7200.
- Extension of the credit: Businesses can now claim a tax credit for any quarter in 2021 where a decline in gross receipts can be shown, or if the business was asked to fully or partially suspend operations.
Why Your Business Should Capitalize on the ERTC
1. Bolster Your Financial Health
The pandemic’s impact on the economy has left businesses scrambling for financial help. Utilizing the ERTC can provide much-needed aid in maintaining operational activities by effectively reducing your tax liability.
2. Retain Your Employees
Retaining employees during a pandemic can stabilize your workforce and maintain business continuity. By leveraging the ERTC, businesses can afford to retain employees even if they’re temporarily not able to work.
3. Facilitate Business Recovery
By shoring up liquidity and maintaining an efficient workforce, businesses can be better positioned to recover once conditions improve. The ERTC thereby not exclusively addresses immediate concerns but also facilitates long term recovery.
Frequently Asked Questions
Q: What is the Employee Retention Tax Credit?
A: ERTC is a refundable tax credit against certain employment taxes equal to 70 % of the qualified wages an eligible employer pays to employees after December 31, 2020, through June 30, 2021.
Q: Who is eligible for ERTC?
A: All employers, regardless of size, are eligible for the credit if they have faced a significant decline in gross receipts or have been partially or fully suspended by government order.
Q: How long is the ERTC available?
A: The ERTC was first implemented as part of the 2020 CARES Act and has been extended through December 31, 2021.
In conclusion, it is pertinent to mention that while the ERTC offers substantial benefits and can help mitigate business challenges during a crisis, it is crucial to understand the complexities surrounding it. Businesses should seek professional guidance to ensure they’re fully compliant and taking maximum advantage of what the ERTC has to offer.