Improve Your Bottom Line!

Taking the Employee Retention Credit (ERC) can be a huge benefit to an employer’s bottom line for several reasons:

1. It is a refundable tax credit that can reduce employment costs: Many employers may be eligible for the ERC, which is a credit that can provide up to $5,000 of benefits per employee. This can help offset some of the payroll costs associated with keeping employees on during the COVID-19 pandemic.

2. It can help preserve cash flow: By reducing employment costs, the ERC can help save money that can be used to help the business maintain operations, pay employees, or invest in growth opportunities.

3. It is available through multiple quarters: Employers can take the ERC for multiple quarters, which can amount to significant savings over time.

4. It can also be retroactively claimed: Employers who did not claim the full value of the ERC in 2020 can go back and amend their tax returns to include the credit. This can help generate additional savings that can help the business as it moves forward.

Why is the business owner’s salary excluded from the ERC program?

The Employee Retention Credit (ERC) was created to help businesses that were impacted by the COVID-19 pandemic retain their employees. The credit is based on the wages and health care costs paid to an employee between March 13, 2020, and December 31, 2021, and is calculated based on the employee’s qualified wage limit. 

However, the business owner's salary is excluded from this calculation. This is because business owners are not considered employees for the purposes of calculating the ERC. Instead, the credit is calculated based on the wages paid to employees who are not owners or related to owners.

The reasoning behind this exclusion is to prevent business owners from benefiting unfairly under the program. Business owners who are actively involved in the daily operations of their companies can already benefit from the reduction of their overall payroll and compensation expenses, without partaking in the Employee Retention Credit (ERC). By focusing on employee wages and other qualified expenses, the ERC program can help target benefits for the business’s hourly and salaried workforce that actively contributes to the health and wellness of each company.

Taking advantage of the ERC can be a wise financial decision for businesses, especially during a time of economic uncertainty. Employers should consult with a professional to see if their business qualifies for the credit and learn about the best strategies for implementing and claiming the credit.