Employee Retention Credit: Tips for Small Business Owners



Presented by Paystrubmakr.com     By John Wolf and Tom C. CPA



Your small business may be eligible for the employee retention credit as an owner of a small business in the United States (ERC). 

This tax credit is a part of the CARES Act of 2020 and was created for the covid 19 time to assist businesses in maintaining their employees on the payroll during the COVID-19 pandemic. 

The legislation expanded the ERC, making it an essential help for small businesses to save money and avoid laying off parts of their workforce. 

This article will define the ERC, its benefits, and how to increase it to the maximum.

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What is a Retention Credit?

The tax credit is a refundable retention credit available to employers whose employees are kept working even when times are tough.

The credit is worth up to 70% of eligible wages made between March 13, 2020, and December 31, 2021, Limited to a maximum of $10,000 per employee per three months.

 If a business has ten eligible employees, it could be eligible for up to $700,000 in tax credits spread out over a year.

The Employee Retention Credit

The Employee Retention Credit (ERC) offers a credit of up to $5,000 for each employee to eligible small businesses that have seen a significant drop in revenue due to COVID-19. Small business can reduce their tax liability, get more cash flow, and retain employees by making the maximum benefits of the ERC.

The Benefits of Maximizing an Employee Retention Credit?        

Maximizing benefits by retention credit for Small businesses can be done in various ways. Below are some of the advantages of increasing the ERC:

Saving Money

The employee retention credit can assist small businesses in lowering their tax bill. This credit can reduce tax liability and keep more money in your industry.

Reduced Payroll Costs

Eligible employers for ERC can get a tax credit of up to $28,000: Small business owners can reduce their Payroll costs by increasing their recognition, saving them money, and retaining their employees.

Employee Retention

One of the primary advantages of employee retention credit is that it can assist you in retaining your employees. You can keep a loyal and motivated team committed to your business growth by providing financial support to your workforce during difficult economic times.


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About Cash Flow Management

ERC is a refundable tax credit; eligible employers can receive a cash refund if the credit amount exceeds their payroll taxes. Small business owners can improve their cash flow management and reinvest the savings into their company by maximizing credit.

 Skilled Employees Retention 

Businesses had financial difficulties during the pandemic and were forced to make difficult men-power decisions. Small business owners can retain skilled employees and avoid the costs and time associated with hiring and training new employees by maximizing the ERC.

About Increased Business Resilience

Going on the ERC to its full potential can help small businesses weather financial crises and improve their resistance. Small business owners can keep their operations alive and position their company for growth by saving on payroll costs, such as managing employee pay stubs and improving cash flow.

Community Impact

Small businesses play an essential role in their communities. They provide people with job opportunities, goods, and services. Small business owners can help support their local economy by maximizing the ERC. Using the ERC allows small business owners to position their companies for long-term success while contributing to economic recovery.


Here are some helpful tips and strategies for small business owners to maximize Employee Retention Credit.

Small business owners can maximize the employee retention credit (ERC) by implementing these helpful tips and strategies:

Maintain Accurate Records

Small business owners hoping to receive the credit must meet specific eligibility criteria the ERC requires. These criteria include a reduction in gross receipts, a complete or partial shutdown due to COVID-19, or a significant decrease in gross receipts. It is crucial for small business owners to thoroughly examine the eligibility requirements and seek expert guidance to ensure that they meet the qualifications.

Small business owners who want to claim the ERC must maintain accurate records of their employees’ eligible wages. Keeping track of these wages every quarter is essential to calculate the credit correctly. Additionally, small business owners should keep any documentation proving their ERC eligibility.

Seek Professional Advice

Small business owners can increase their ERC by consulting a tax professional or accountant for guidance. These experts can assist small business owners in navigating the eligibility criteria, calculating the credit, and ensuring compliance with IRS regulations.

Consider Amending Previous Tax Returns

If you forgot to claim the employee retention credit on your past tax returns, you can make amendments and get a refund. Generating revenue from this could greatly benefit your company’s cash flow.

Take the initiative.

Waiting to apply for the ERC until the last minute It is advisable to follow this recommendation. The IRS has set a deadline for claiming the credit. As a result, you must be proactive and submit your application as soon as possible.

Utilize payroll software.

Payroll management can be simplified and made more accurate by utilizing payroll software, which can assist in calculating the ERC and maintaining precise records. Payroll software programs often come equipped with tools that can aid small business owners in determining eligible wages and calculating credits.

Retain employees on the payroll.

Small business owners must maintain their employees on payroll during the eligible period to qualify for the ERC. As an employer, it is essential to ensure that your employees continue to receive their pay stubs. Small business owners can make the most of their credit options by keeping their employees on the payroll and retaining their workforce.

It is essential to monitor any regulatory changes.

Note that the ERC may be adjusted following updates to IRS regulations and changes in government legislation. Small business owners should stay current with regulatory changes to maximize their credit. It’s essential to monitor these changes regularly.


Tax regulation is important
Keep your attention on new regulations.


Plan Ahead

Small business owners can maximize their ERC by planning ahead of time. By reviewing their financials and projected revenue, small business owners can determine the best strategy for using credit and positioning their company for long-term success.


During the COVID-19 pandemic, small businesses can use employee retention credit to save money while retaining their workforce. That is a beneficial tool for such companies. Small business owners should familiarize themselves with the following tips to maximize tax credits. To receive eligibility, it’s essential to maintain accurate records and seek professional advice. It’s also beneficial to take a proactive approach. During these uncertain times, small businesses in the United States can benefit from the financial assistance the employee retention credit provides.


Who can claim the Employee Retention Credit?

This credit is available for small business owners with less than 500 employees. To qualify, they must have experienced a notable decline in their gross receipts or had to close down partially or entirely due to the pandemic.

What steps can small business owners take to maximize their utilization of the Employee Retention Credit?

As an owner of a small business, you can make the most out of credit in numerous ways. These include retaining your employees, keeping a close eye on your gross receipts, and ensuring that your records accurately reflect your eligible wages.

What are the potential consequences if the Employee Retention Credit is claimed incorrectly?

Making false claims for tax credits can lead to penalties, interest, and possible audits by the IRS. Working with a qualified tax professional is essential to ensure accurate and timely filings and avoid any negative consequences. They can guide the procedures to protect your financial and business interests.

A question regarding the Employee Retention Credit. Can I use it multiple times in a previous quarter?

If you have mistakenly claimed the credit in a previous quarter, there are two ways to correct it. You can file an amended employment tax return or reduce your next employment tax deposit. The IRS  may contact you to request the necessary corrections.

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