Few of us will ever forget March 2020, especially if we were in business at the time. As COVID-19 reached the U.S., lockdown orders went into effect, and unemployment skyrocketed. In an attempt to lessen the fallout, Congress passed the CARES Act. Among other measures, the CARES Act offered employers a
tax credit toward the wages and health care costs of employees kept on the payroll.
Known as the Employee Retention Tax Credit (ERTC), it provided small and medium-sized businesses with a 50% tax credit toward employee wages if they continued paying their workers despite a business shutdown or significant drop in gross receipts. Initially set to expire at the end of 2020, the ERTC was later extended.
A 2021 update increased the tax credit amount to 70% and upped the wages employers could claim each year. Combined with an extension through the end of 2021, these changes to the ERTC can benefit many businesses. But the adjustments to the program have also resulted in confusion.
Money On The Table
Some business owners are hesitant to take the credit, afraid that they’ll incorrectly file and get in trouble with the IRS. Many others don’t know the ERTC exists. At one point, the National Federation of Independent Business (NFIB) found that only 4% of small-business owners were aware of it. Even worse, scams have abounded. The IRS warned business owners in October 2021 to beware of third parties who claimed they could help businesses secure the credit, as some were taking large payments and running.
As with many tax issues, the process seems daunting, but that’s no reason to leave money for your business on the table. There’s no requirement for how you spend the money you receive back, and it could provide a crucial investment for your franchise. The government has also allowed companies to retroactively claim the credit for 2020 and 2021, so it’s not too late to take action.
All business owners should take the time to review their eligibility for the ERTC to determine whether they likely qualify. Those who believe they may be eligible should then work with a tax professional — ideally a certified public accountant — to confirm they are candidates and properly file the paperwork. Though the worst of the pandemic has passed, its effects are still felt on the economy, and every business could use the boost.
