The 2020/2021 pandemic and economic shut downs impacted small businesses across America. To mitigate steeper financial damage, the CARES Act was signed into law on March 27, 2020. The act implemented a variety of programs to address financial issues related to the COVID-19 pandemic.
One component of the CARES Act is the Employee Retention Refund (ERC). It’s a refundable payroll tax credit from the Federal government to help businesses recoup some financial losses from certain periods in 2020 and 2021. The American Rescue Plan extended the availability of the ERC for small businesses through December 2021.
There are two deadlines to apply for the ERC: For all quarters in 2020, the deadline to apply for the ERC is April 15, 2024, and for all quarters in 2021, the deadline is April 15, 2025.
Because of the pandemic, a decade-long economic expansion came to a halt early in 2020. Businesses suspended operations or closed, resulting in a record number of layoffs.
The refund, under the CARES Act, encouraged businesses to keep employees on their payroll. The ERC provides a refundable employment tax credit to help businesses with the cost of keeping staff employed.
The American Rescue Plan extended the availability of this payroll tax refund for small businesses through December 2021. Eligible businesses may be able to offset their current payroll tax liabilities per employee per quarter. This credit is available to small businesses who saw their revenues decline, or were at least partly closed due to a government order.
A small employer is defined as having 100 or fewer full-time equivalents (FTE) when claiming the 2020 ERC. A small employer is defined as having 500 or fewer FTEs in order to claim the 2021 ERC. The reference period is 2019 employment.
A full-time employee for any calendar month is an employee who has, on average, at least 30 hours of service per week during the calendar month or at least 130 hours of service during that month.
Before you start gathering paperwork, make sure that you meet the requirements to apply for this credit. You may qualify if you are a small business that meets the following:
The quarterly revenue decline eligibility requirement differs based on the year.
Businesses that took out a Paycheck Protection Program (PPP) loan in 2020 may still claim the Employee Retention Credit, but they cannot use the same wages to apply for forgiveness of PPP loans and claim the refund. If your business had payroll costs that were more than the amount covered by your PPP loan, you may be able to claim tax credits for those additional payroll costs.
In October 2022, the IRS issued a press release stating that businesses are encouraged to be cautious of advertised schemes. Taxpayers are always responsible for the information reported on their tax returns.
SmartBiz is on a mission to equip every business owner with access to capital. To that end, we have partnered with ERTC*, an ERC-focused consortium of accountants that are available to help small businesses navigate the ERC filing process. Start your claim or give us a call.
If you’re still recovering from the pandemic and resulting economic shut downs, the SmartBiz blog has resources that may help.