After coronavirus disease (COVID-19) limitations were relaxed, a store advertises for staff in Santa Monica, California, on June 22, 2021. Reuters’ Lucy Nicholson In a tight labor market that has given workers the upper hand, small businesses throughout the country are battling to keep employees and recruit new ones. Employers added a better-than-expected 850,000 jobs in June, and salaries ticked higher again, according to the latest nonfarm payroll report released on Friday. Businesses are being pushed to give better compensation and additional benefits in order to retain employees and take advantage of the post-Covid flourishing economy. They’re also up against a host of prominent firms around the country that have raised wages and offered lucrative incentives. Amazon is paying a $1,000 sign-on bonus for select warehouse jobs; McDonald’s increased its minimum wage in May and now offers $400 and $500 bonuses for specific roles; and Chipotle pays an average of $15 per hour and gives existing employees a $200 referral bonus. Small firms are still attempting to recover from losses caused by the coronavirus outbreak, so this struggle for talent has been difficult. However, many people are entitled to receive money from the government in the form of a credit against their employment taxes. Small and midsize enterprises can receive funds directly from the federal government through the Employee Retention Credit (ERC), which reimburses employers for a portion of their employee salary. Many business owners have already benefited. Paychex CEO Marty Mucci told Jim Cramer on CNBC’s “Mad Money” last Tuesday that “this helps them balance wages, wage hikes, as well as some of the pay for new personnel they’re bringing in.” “We’ve already processed more than $3 billion in employee retention tax credits, which is money in their pocket right now to assist them out.” Despite this, many small firms are unaware of it. “The employee retention tax credit is one of the big programs that has been mostly unknown,” said Sarah Crozier, a spokesman for the Main Street Alliance, a small business advocacy group. “Many people conceive of a tax credit as a later repayment, yet this is provided up front.” The workings of the tax credit The ERC began with the federal Covid economic assistance package and has since been enhanced to allow firms to recover more money back from wages paid to employees in 2020 and 2021. Businesses can get reimbursement for wages paid through the end of 2021, as well as retroactive payments for wages paid in 2020. For each quarter of the calendar year, eligible firms can claim up to 70% back on up to $10,000 in wages paid to employees, or a maximum of $7,000 per employee. It adds up to a possible cash return of $28,000 per employee per year. Because you must have 500 employees or fewer to be eligible for the Employee Retention Credit, it is oriented toward small and medium firms. In addition to the employee threshold, businesses must currently experience a 20% reduction in gross receipts in one 2021 quarter compared to the same quarter in 2019, or, if they do not, businesses must have been partially or completely shut down by the government during the quarters for which they are claiming the ERC. To qualify for the 2020 CARES Act, gross receipts in a calendar quarter had to be less than 50% of gross sales in the same calendar quarter in 2019. How to Submit an IRS Claim The ERC can decrease an employer’s overall obligation and the cash claimed retrospectively if they have already paid 2020 taxes. Businesses must file out an advance payment form, or Form 7200, with the Department of Treasury’s Internal Revenue System, or process it through a payroll company like Paychex, to get the ERC money back in the form of a refund on taxes already paid. “A lot of these firms have limited cash flow runways, so getting as much money now rather than being paid later in the year is critical,” Crozier explained. In 2021, the credit will be a dollar-for-dollar cash return up to $7,000 per employee, per quarter (in 2020, it was a credit on up to 50% of a $10,000 limit per employee, yearly). Start-ups that were founded after February 15, 2020 and were forced to close down may be eligible for a higher credit. It can lower obligation per employee and the amount of employment tax that would have been paid otherwise, including federal income tax withholding, Social Security, and Medicare taxes, for the current payroll period. According to Tony Nitti, a partner at RubinBrown’s tax services department, the quarter in which a business claims the credit — businesses normally submit employment taxes quarterly — makes a huge difference, and 2020 is the year in which higher labor expenditures are expected to be eligible. Because business is substantially stronger in 2021 than it was in 2020, the requirement for a decrease in gross receipts from 2019 may no longer be met. Businesses must remember the rules, according to Nitti, and focus on claiming the ERC money only for the quarters in which they qualify. How do you keep track of your paid wages? Wages are only eligible for this cash back incentive if they are subject to the FICA tax, which is a federal payroll tax in the United States, while wages paid to a business owner’s relatives are not. Though money used for hiring bonuses in order to compete with Amazon and McDonald’s can be counted as ERC-eligible pay. Businesses receiving Paycheck Protection Program loans were not allowed to claim the ERC in the first economic relief package, but they can now if they remove any PPP loan money used to pay salaries and, most significantly, have not sought for PPP debt forgiveness. Employers can choose whether to request for forgiveness on the PPL debt or the ERC loan. They can still apply for the ERC if they request for forgiveness and are denied. Furthermore, any wages other than those paid with PPP loan monies are still eligible for the ERC./n
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