Startups and new businesses face unique challenges during the COVID-19 pandemic, including financial instability, reduced funding, and disruptions to operations. The Employee Retention Credit (ERC) can provide critical financial support for startups and new businesses to maintain their workforce and promote economic resilience. This article will discuss how startups and new businesses can optimize ERC benefits.

Eligibility Requirements: Startups and new businesses must meet specific eligibility requirements to claim from the ERC. Eligibility requirements include experiencing a significant decline in gross receipts or a full or partial suspension of operations due to government orders. Startups and new businesses should evaluate their eligibility and maintain proper documentation to support eligibility claims.

Benefit Calculation: Startups and new businesses can claim the ERC for qualified employee wages. Qualified wages may include salary, tips, and health benefits, among other expenses. The credit calculation depends on the year in question. For 2020, the maximum Employee Retention Credit an employer can receive per employee is $5,000. In contrast, for 2021, the maximum credit achievable for each employee is $7,000 for each quarter the business qualifies for ERC. Startups and new businesses may also claim credit for qualified health plan expenses. The ERC can be used to offset payroll taxes or applied as a refund, providing startups and new businesses with immediate access to much-needed funds.

Workforce Development Initiatives: Startups and new businesses can use the ERC to invest in workforce development initiatives, promoting long-term economic resilience. Workforce development initiatives may include training and upskilling programs, mentoring and coaching, or recruitment and retention programs. By investing in workforce development, startups, and new businesses can improve their workforce's skills and capabilities, promote employee engagement and retention, and enhance their competitiveness in the marketplace.

Enhancing Service Offerings: Startups and new businesses can also use the ERC to invest in enhancing their service offerings. The credit can be used to invest in innovation and growth initiatives, expand their product or service offerings, or improve customer experience. By enhancing their service offerings, startups, and new businesses can increase their revenue streams, improve their market position, and promote long-term economic resilience.

During the COVID-19 pandemic, startups and emerging enterprises encountered unprecedented hurdles, such as financial uncertainties, diminished investment, and operational interruptions. The Employee Retention Credit (ERC) stands as a vital financial lifeline, helping these businesses retain their staff and bolster economic stability. To navigate the intricacies of the ERC and guarantee adherence to tax guidelines while maximizing their advantages, startups and nascent firms should seek guidance from a reputable CPA firm.

Talley’s professionals have spent literally hundreds of hours reviewing the law, regulations, and FAQs issued on an almost daily basis regarding the ERC and PPP, and we are happy to assist you in the process. We are available to simply answer a quick question or assist in the application and/or refund process. Contact us today.