How the Employee Retention Credit (ERC) Helps Businesses
Many businesses, especially small businesses, were significantly impacted by government shutdowns and lost sales during the COVID-19 global pandemic. The Coronavirus Aid, Relief and Economic Security Act (CARES) of 2020 offers benefits to help eligible businesses recoup some of these losses.(3)
The goal of this payroll tax refund program was to entice employers to retain workers, even if the business was unable to open due to restrictions or had to reduce its workforce due to a drop in sales. Rather than taking a small-business tax write-off to recoup some of these funds, employers can apply for ERC small-business tax credits of up to $26,000 per employee. When multiplying this credit by numerous eligible employees, ERC collections can be quite substantial.
Fortunately, the filing date to apply for ERC credits doesn’t end until April 15, 2024, for earnings in 2020 and April 15, 2025, for earnings in 2021. Even businesses that obtained PPP loans can still qualify for an ERC tax break. Employers can’t, however, apply the same wages to both programs.
There are no restrictions as to how businesses must spend Employee Retention Credits. As long as a business qualifies, these funds can be used for any purpose, including to help stabilize and grow its operations. For example, a business can use ERC funds to pay down debt, hire more workers, renovate a workplace, and secure a supply chain.
Business owners who don’t have the time or desire to assess the rules and regulations pertaining to these credits can work with an ERC company or ERC collection agency to secure eligible funds. This step lets businesses obtain qualifying ERC funds without the hassle of organizing tax forms and managing the application process.