If you’ll look at US history, you may find small businesses were considered the backbone of the US economic development and growth. However, due to the COVID-19 pandemic outbreak, it significantly becomes a challenge for such small businesses to run their operations and revenue streams.

In order to support small businesses during such difficult times the US government has implemented several relief programs that include Employee Retention Credit (ERC)/ Employee Retention Tax Credit (ERTC) programs. That is introduced with the purpose of encouraging small businesses in tough times. Keeping this under concern, in this blog post we’ll tell you how ERC helps small businesses recover from COVID-19, how ERC could benefit small businesses, and how they can claim the credit.  

Overview of ERC, What is ERTC? 

There are around 33.2 million small businesses in the US that signify whooping 99.9% of US business. Their contribution is huge when it comes to US economic growth. Thus to keep such economic growth constant the inclusion of ERC is done turn out A game-changer for small businesses’ survival. 

The ERC is a tax credit that was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. Its purpose is to encourage businesses to keep employees on their payroll and continue operating during the pandemic. This credit provision is designed to deliver a set portion of employee benefits and wages that goes up to $5,000 per employee.

According to ERC, the businesses who have experienced partial or full suspension of their business operations due to pandemic and government orders or decline in their gross receipt. Such businesses are liable to claim the credit for up to $10,000 per employee every quarter.  

To calculate the ERC, eligible businesses can claim a credit of 50% of qualified wages paid to employees between March 13, 2020, and December 31, 2021. 

How ERC can benefit small Businesses? 

  • Cash Flow Benefits: The ERC provides a tax credit that can be used to reduce the financial burden and balance the payroll costs of small businesses. This can improve cash flow and help businesses manage their expenses during the pandemic.
  • Covering employee wages and benefits: The ERC can help small businesses cover employee wages and benefits, making it easier to retain valuable talent during these challenging times.
  • Operating Expenses Assistance: By availing of ERC, small businesses can get their operating expenses covered. It can be used for paying utility expenses, rent, and supplies and to keep the business running.   
  • Increasing Employee Morale: ERC helps small business boost their employee morale. By keeping their employees on the payroll, and supporting them to aid their wages and benefits. This way businesses easily maintain stability and continuity in their workforce, help boost employee productivity and morale, and value their work efforts in a such tough time.   

How small businesses can Claim ERC? 

  • What are the filing requirements? 

Small businesses can claim ERC by filing IRS Form 941 which is the employer’s quarterly federal tax return. The credit amount is entirely refundable so the businesses will receive the refund for the credit that exceeds their tax liability.

  • What documents you’ll need to submit? 

Documents are the most important element that holds the record of your company and employees’ employment history. To claim the ERC it is important for small businesses to maintain the documentation in order to support their eligibility for the ERC. This must compulsorily include employee benefits, their weekly or monthly wages, expenses, and revenue records.  

  • What is the deadline for claiming ERC? 

Deadlines are an important factor for claiming ERC. It is essential for small businesses they must claim the ERC by the end of their calendar year following the year in which the qualified wages were paid. For example, businesses that paid qualified wages in 2020 must claim the credit by December 31, 2021.

What are ERC’s Challenges and Limitations? 

  • Complicated Application Process: 

If you think that filing ERC can be easy when you hold all the documents in your hand, well applying for ERC is not easy as it sounds. ERC consider a complex application process that requires small businesses to meet specific eligibility criteria and maintain documentation to support their claim. Therefore, we offer small business ERC application support.

By offering financial service support to every large and small business for over 10+ years. We got better connections and command over every fin-serv related work. Being updated with SEBI and IRS rules update we make sure our clients will stand on every ERC eligibility criteria so they can receive their “6-digit amount” as quickly as possible. 

  • Fund Availability: 

Another issue is fund availability. Even if you are all checked as per  ERC criteria there’s a possibility of delay in fund availability. Since ERC is subject to appropriations by Congress, small businesses may face delays in receiving the full benefit of credit due to funding limitations.

  • Interplay with Other Relief Programs: 

Small businesses that have received other relief programs, such as the Paycheck Protection Program (PPP), might face some additional delay in claiming the ERC. As the ERC may interact with other relief programs like PPP. This makes requiring small businesses to carefully consider their options and prioritize their needs.

  • Credit Calculation Criteria:

The limitation of credit calculation criteria is the biggest challenge we feel for small businesses. The limitation is that an employer may only calculate the credit on the first $10,000 of health plan and wages cost paid to every employee during the credit-generating period.

To Wrap Things Up

The ERC is an essential relief program that can benefit small businesses by providing tax savings and assistance with payroll, covering operating expenses, and cash flow, and retaining valuable employees. Small businesses should take advantage of the ERC to support their growth and sustainability. 

To make the most of the ERC, small businesses should understand the eligibility requirements, maintain documentation, and work with trusted advisors to navigate the complex application process. 

Therefore, to easily pass out the ERC criteria taking the help of a trusted advisor such as Gconnect Pro will help navigate the complexities of claiming the ERC and other small business tax incentives. GConnectPro is a one-stop solution for every business requiring financial sources that can help small businesses with the support they need to claim the ERC and take advantage of other small business tax incentives.