Tips To Help Small Business Owners Better Understand and Maximize the Employee Retention Tax Credit in 2021

By: Brent Johnson, co-founder of Clarus, the leader in technology that enables businesses to unlock the value of tax incentive programs

Our company recently conducted a survey of 500 business decision-makers and found that nearly half (44 percent) of businesses haven’t participated in any incentive programs beyond PPP because they don’t know if their company qualifies. In addition, almost all businesses (88 percent) say they would be more willing to use a solution to manage incentive programs if it was backed by accountants.

For many industries, the Employee Retention Tax Credit program is the single biggest opportunity for employers to get the federal support they need in 2021, yet it has not been widely recognized to date as such and in many cases, it is more significant than PPP was in 2020.

So what is the Employee Retention Tax Credit (ERTC) and how do companies figure out if they qualify? Here are some tips and insights to help determine if your company is eligible and unlock the full value of ERTC to rebound and grow as the pandemic continues: 

What is the Employee Retention Tax Credit?

The Employee Retention Tax Credit is an incentive program enacted as part of Congress’s response to the COVID-19 crisis. It is intended to provide economic relief to employers whose operations were impacted by government orders associated with the pandemic, yet continued to pay employees. The ERTC, under the CARES Act, is a fully refundable payroll tax credit that allows eligible businesses to deduct up to 70 percent of up to $10,000 in qualified wages paid per employee per quarter for tax year 2021.

Can a Business Claim Both ERTC and PPP? 

The Consolidated Appropriations Act, 2021 extended and enhanced both the Paycheck Protection Program (PPP) and the ERTC program. Companies that received PPP loans may now also claim the ERTC. Congress also removed a restriction on dual support, so now employers can claim the PPP loan and an Employee Retention Tax Credit – including a look-back opportunity for businesses which meet the eligibility requirements of the ERTC in 2020.

How Do I Know If My Business is Eligible? 

Companies qualify for the ERTC if they (1) had a substantial decline in quarterly revenue, or (2) were fully or partially shut down due to governmental orders, or (3) began a new trade or business and previously had less than $1 million in average annual revenue.

How Much Credit Can I Expect to Receive? 

For 2020, the ERTC is worth up to $5,000 per employee per year. In 2021, it’s now worth up to $7,000 per employee per quarter.

Which Industries Have Been Impacted? 

Any industry which was negatively impacted by COVID-19 crisis.  Especially significant are health-care, hospitality, restaurants and food-service, retailers, staffing, assisted living and even many not-for-profit organizations.

When will the Employee Retention Tax Credit End?

The ERTC is currently set to end on December 31st, 2021, however, there is a provision in the infrastructure bill which would end the program on September 30th if passed by Congress.  However, it is open-ended – meaning even after this date, businesses have up to three years from the date of filing their employment tax return to make their claim.

How Can Businesses Like Clarus Help?

Clarus ensures companies are able to identify eligibility and document it appropriately while also streamlining the process so business owners can focus on growth and not paperwork. Our focus is to help every small and midsize business take advantage of ERTC and it starts by driving awareness so that more companies can easily tap into it. 

Clarus monitors more than 60 state and federal tax incentive programs and has helped companies secure more than $175MM in incentive dollars. To learn more and determine if your business is eligible for ERTC, visit https://info.clarustaxcredits.com/acton/media/43811/ertc

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