The COVID-19 pandemic has created a challenging economic environment for businesses of all shapes and sizes. Now more than ever, these businesses are seeking out resources and advice on how to move forward and put themselves in the best position for the future. One way companies can put money back into their pockets is through federal and state tax credits. This article will focus on the Employee Retention Tax Credit (ERTC).
THE HOUSE AND SENATE ARE CONSIDERING NEW LEGISLATION THAT WOULD REMOVE CERTAIN RESTRICTIONS TO CLAIMING THE ERTC. THIS WOULD MAXIMIZE THE BENEFITS OF THE PROGRAM FOR SMALL BUSINESSES. IF APPROVED, EMPLOYERS COULD CLAIM THE ERTC IN ADDITION TO THE R&D TAX CREDIT.
The CARES Act that Congress passed back in March gave birth to this valuable tax credit. It is a payroll credit of up to $5,000 per employee. And it is meant to offer partial relief from the financial stress that many businesses are facing due to the pandemic. The main purpose of the ERTC is to incentivize businesses to maintain their payroll, even if they have been negatively affected by COVID-19.
Possible ERTC Changes
Initially, there were limitations that prevented employers from claiming the ERTC if they received a PPP loan, which is also part of the CARES Act. If this pending legislation (which has bi-partisan support) passes, it would remove certain restrictions to claiming this credit. This would maximize the benefits of the program for small businesses. If approved, employers could claim the ERTC in addition to the R&D Tax Credit. Essentially, then, employers could stack the credits literally on top of each other!
This credit is fully refundable. Hence, you can use the R&D Tax Credit against your FICA tax obligation first, then claim the ERTC – maximizing your tax benefits.