ERTC is a refundable tax credit that allows eligible employers to take a credit against payroll taxes equal to 70% of qualifying wages paid to employees over a specified period of time. This Employee Retention Credit Tax (ERTC) can provide significant benefits for eligible businesses. Some of the most important benefits of ERTC include:
1. Cash flow for your business
ERTC provides a refundable tax credit; This means that if the loan amount is more than payroll taxes, the excess amount can be refunded to the business. This can provide a significant cash inflow for your business during a challenging time.
For example, if your business owes $10,000 in payroll taxes and is eligible to receive an ERTC of $15,000, you will be refunded $5,000. This can help your business cover operating expenses, pay off debt or invest in growth opportunities.
2. Helps retain employees
ERTC is designed to encourage businesses to retain their employees. By providing a credit for appropriate wages, businesses can offset some of the costs associated with retaining employees in a time of economic uncertainty.
This can help your business maintain a stable workforce and avoid the costs associated with hiring and training new employees. Additionally, by retaining employees, your business can position itself for a faster recovery when economic conditions improve.
3. Can be used in conjunction with other assistance programs
ERTC can be used in conjunction with other COVID-19 relief programs such as the Paycheck Protection Program (PPP). However, any fees used to calculate ERTC cannot be used to calculate PPP loan forgiveness. This means that your business can receive both ERTC and PPP funding, as long as the fees used to calculate each program do not overlap. This can provide additional relief for your business and help you meet a wider range of expenses.
4. Can be moved forward
If your business is unable to use all of the ERTC in a given year, the excess credit can be carried forward to offset future payroll taxes. This can provide long-term relief for your business and help reduce the impact of future payroll taxes. Additionally, if your business experiences a reduction in payroll taxes in future years, you can use the carry-on credit to offset the reduced taxes.
5. Extended eligibility and increased loan amounts
ERTC was expanded to include more businesses and credit amounts per employee were increased quarterly. This means that even if your business wasn’t eligible before, you may be eligible now. Additionally, increased loan amounts can provide even more relief for eligible businesses.
For example, in 2021, eligible businesses can receive loans of up to 70% of qualifying fees, up to a maximum of $28,000 per employee per quarter. This could provide a significant increase from 2020 loan amounts and much needed relief for eligible businesses.
In summary, ERTC can provide significant benefits for eligible businesses, including cash flow, employee retention, the ability to use with other assistance programs, the ability to move excess credit forward, and expanded eligibility and increased credit amounts.
It’s important to consult with a tax professional or accountant to determine if your business is eligible for a loan and to make sure you’re maximizing the amount you can get.