As we all continue to cautiously progress from lockdowns and staggering COVID caseloads to something beginning to resemble normalcy, many SMBs and mid-sized organizations are struggling to piece together a financial future. This includes businesses that were publicly struck by COVID like retail, theater, restaurants and sporting events, as well as those that were financially affected with a little less publicity but no less severity such as doctors and dentists.
While PPP (Paycheck Protection Program) represented a critical lifeline to many business owners, a new Federal stimulus tool is proving to be even more important than PPP to businesses. This stimulus is called the Employee Retention Credit (ERC, sometimes called the Employee Retention Tax Credit — same thing).
What is ERC?
ERC is technically a tax credit, although it has much more in common with PPP than a conventional tax credit like the child tax credit. Like PPP, ERC provides immediate cash liquidity to recipients, so unlike a conventional tax credit it does not require a liability to offset. However, the particular amount of ERC is triggered by a somewhat complicated formula. The basics look like this.
Employers that were materially affected by COVID or lockdown, yet chose to retain employees who might have otherwise been laid off or furloughed, are eligible for a cash payment of up to $7,000 per employee per quarter which they were retained. So if you are a 10-person California boutique grocer that chose to knuckle through lockdown, you would be eligible for a $350,000 check (10 employees x $7,000 x 5 quarters). Likewise, if you are a 300-person, six-location home health retailer, the impact could be north of $10 million.
The Hero Credit
So why did the federal government produce a program as potentially impactful as ERC? Simply speaking, it’s doing the right thing by the financial heroes of COVID. The business owners who bore the brunt and kept people employed not only need cash, they deserve it. While the formula behind the ERC is complicated, don’t be intimidated by it! ERC is not a loan and not really a conventional tax credit as most people understand it — it’s much closer to a grant in that sense.
Too many organizations are shying away from the ERC. And I understand that it seems either too good to be true, intimidating, or potentially exposing yourself to future punitive action from the Feds — but none of that is an excuse. Have your CPA look into it. Or if you run payroll through a big provider like ADP, ask them about it. Or call one of the many tax advisors out there to look into it for you. While the calculation may be complicated, there are thousands of experts out there who are able to help you secure the money that you have rightfully earned.
If you are one of the people who kept other people employed during COVID, then you are a financial hero. And the ERC is your reward.
Laurence Sotsky is the CEO of Incentify, an enterprise technology firm dedicated to realizing the financial and societal goals of Tax Credits & Incentives (C&I).