The COVID-19 pandemic has had a significant impact on businesses of all kinds, with many struggling to maintain operations and keep employees on their payroll. To help alleviate some of the financial burden, the U.S. government has introduced several relief measures, including the Employee Retention Credit (ERC).
In this post, I will provide an in-depth explanation of the ERC tax credit, including its eligibility requirements, how it works, and the potential benefits for commercial cleaning services.
What is the ERC Tax Credit?
The ERC is a refundable tax credit that is designed to encourage businesses to keep employees on their payroll during the COVID-19 pandemic. It was first introduced in 2020 as part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act and was later expanded and extended under the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021.
The ERC provides eligible employers with a tax credit of up to 70% of qualified wages and healthcare expenses paid to employees from March 12, 2020, through December 31, 2021.
The credit can be claimed against certain employment taxes, including federal income tax withheld from employees, and the employer's portion of Social Security and Medicare taxes.
To be eligible for the ERC, an employer must meet certain criteria, such as experiencing a significant decline in gross receipts or being subject to a full or partial suspension of operations due to a government order related to COVID-19.
There are also specific rules for small employers (those with an average of 500 or fewer full-time employees in 2019) and for employers who received a PPP (Paycheck Protection Program) loan.
How Does the ERC Work?
To claim the ERC, eligible employers must report the qualified wages and healthcare expenses on their employment tax returns (Form 941). The credit is then applied against the employer's portion of Social Security and Medicare taxes, and any excess is refunded to the employer.
The maximum credit amount per employee is $5,000 for 2020 and $7,000 for each quarter in 2021. Employers can claim the credit for all employees or only for those who are retained but not performing services.
If you want to claim the ERC tax credit click here.
It's important to note that employers who receive a PPP loan are not eligible to claim the ERC for wages paid with the proceeds of the loan. However, they can claim the credit for wages paid with other funds.
How Can the ERC Benefit Commercial Cleaning Services?
Commercial cleaning services have been deemed essential during the COVID-19 pandemic, with increased demand for their services in many industries, including healthcare, education, and hospitality. However, the pandemic has also presented challenges for these businesses, including supply chain disruptions, increased costs for personal protective equipment (PPE), and reduced demand in some sectors.
The ERC can provide much-needed financial relief for commercial cleaning services that have been impacted by the pandemic. Eligible employers can use the credit to offset the cost of retaining employees and paying for healthcare expenses, which can help to maintain operations and keep employees on the payroll.
For example, a commercial cleaning service that experienced a significant decline in gross receipts due to the pandemic may be eligible for the ERC. They could claim a credit of up to 70% of qualified wages and healthcare expenses paid to employees, up to a maximum of $7,000 per employee per quarter. This could result in significant savings on employment taxes and provide a much-needed boost to the business's cash flow.
Here's an example of how the math could work if a business had five employees who qualified for the ERC tax credit:
Let's say this business paid each employee $15,000 in qualified wages and healthcare expenses in Q2 of 2021 (April 1, 2021, to June 30, 2021). The business is eligible for the maximum credit amount of $7,000 per employee per quarter, so the total credit amount for each employee would be $7,000.
To calculate the total credit amount for all five employees, we would multiply the individual credit amount ($7,000) by the number of employees (5):
$7,000 x 5 = $35,000
So, in this scenario, the business would be eligible for a total ERC tax credit of $35,000 for Q2 of 2021. This credit could be applied against the employer's portion of Social Security and Medicare taxes and any excess could be refunded to the employer.
If you're interested in claiming the ERC tax credit click HERE and fill out the form. CleanWork will connect you with an expert.
It's important to note that this is just one example and the actual amount of the ERC tax credit will depend on several factors, including the number of eligible employees, the amount of qualified wages and healthcare expenses paid, and the specific rules and requirements for the credit. It's recommended that businesses consult with a tax professional or accountant to determine their eligibility and calculate the amount of credit they may be eligible for.
Additionally, the ERC can be used in conjunction with other relief measures, such as the PPP loan. Employers who received a PPP loan can still claim the ERC for wages paid with other funds, which can provide additional financial support.
In conclusion, the ERC tax credit is a valuable relief measure that can provide significant benefits for commercial cleaning services and other businesses impacted by the COVID-19 pandemic. The credit can help to offset the cost of retaining employees and paying for healthcare expenses, which can support business operations and maintain employee morale.
Additionally, the credit can be used in conjunction with other relief measures, such as the PPP loan, to provide additional financial support. It's important for eligible employers to carefully review the criteria and requirements for the ERC and to consult with a tax professional or accountant to ensure they are maximizing the benefits of the credit. By taking advantage of available relief measures, businesses can better navigate the challenges posed by the pandemic and emerge stronger in the post-pandemic economy.
Click HERE to fill out the form and connect with an expert to see if you qualify for the tax credit. It cost nothing to qualify and you only have to pay a percentage if you decide to go through with claiming the ERC credit.