Nearly 70% of small business owners applied for loans under the CARES Act. The $2.2 trillion relief bill provided many options for businesses to minimize the burden of the COVID-19 pandemic.
Some of the pandemic relief programs include but are not limited to payroll tax deferrals, employee retention credits, and changes relating to losses of a business.
Read the below article to get a better idea of employee retention tax credit eligibility.
The CARES Act
The federal government passed the CARES ( Coronavirus Aid, Relief, and Economic Security) Act in 2020. This excellent bill was delivered quickly and directly in order to assist citizens and businesses during the pandemic.
Some commonalities of the CARES Act included paycheck protection programs and business tax credit programs. Nearly two credits became available for small businesses and are elaborated upon below:
Paid Leave Credit
The Families First Coronavirus Response Act assisted families hit hard by the pandemic. By creating paid leave credit, they were able to offset some of the requirements.
The paid leave credit involves a major tax break for businesses. By claiming up to $5,000 per employee that takes leave is defined as 1) COVID-19 positive employees, 2) Employees caring for a family member with COVID-19, 3) Employees quarantining for exposure, 4) Employees with less than 500 employees, 5) Employers paying sick and family leaves who are affected by the pandemic.
Requirements for Paid Leave
Up to 80 hours can be taken for sick leave. This capped out at around $511 per day for a total of $5,110 for sick or exposed employees.
When employees are out of work due to quarantining or no childcare due to school or daycare closures, 2⁄3 of their wage is required. Employers must provide 10 weeks of relief and payment for these employees.
Employee Retention Credit (ERC)
The employee retention credit is for businesses that were affected hard by the pandemic and needed to keep retention of employees. This credit is for around $5,000 per employee each quarter for wages from March to December of 2020.
Recent revisions of the law in 2021 allow for claimant of up to $7,000 per employee for each quarter of wages in 2021.
Number of Required Workers
Without a minimum requirement for the number of employees a business has is important. When the business is suspended and lost around 50% or more of gross receipts, the eligibility for the credit exists.
Types of Businesses
Businesses are eligible credits include all except 1) Federal, 2) State, 3) Local Government, 4) Various self-employed people, 5) Household Employers, 6) Tribal governments
Tax Credit Eligibility
The initial CARES Act required businesses to be either partially or fully suspended during the mandated shutdowns. Since the most recent 2021 revisions, the companies who are eligible include 1) recovery startup business, 2) companies in severe financial distress, 3) recovery startup business.
To quantify financial distress, there must be around 90% of a decline in gross receipts. This number is comparable to similar quarters in 2019.
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