After restrictions on coronavirus disease (COVID-19), were lifted in Santa Monica, California, June 22, 20, 2121, a store advertised for employees. ReutersIn a tight labor market, small businesses are having trouble keeping employees on staff and attracting new workers. Friday's nonfarm payroll report showed that hiring is still hot with 850,000 more jobs than expected. Wages are also rising. To retain staff and benefit from a growing economy after Covid, businesses are forced to offer better pay and greater benefits. They are also competing with major corporations in the U.S. who have increased wages and offered attractive bonuses. Amazon offers a $1,000 sign-on bonus to warehouse jobs; McDonald's increased its minimum wage in May, and now offers $400 and $500 bonuses for specific positions. Chipotle offers an average $15/hour wage, and offers a $200 referral bonus to existing employees. Small businesses are still trying to recover from the losses of the coronavirus pandemic and this war for talent is hard on them. Many are eligible to receive money back from government via a credit on their employment taxes. The Employee Retention Credit (ERC) is available to small and medium-sized businesses. It allows them to get money directly from the federal government. This credit gives businesses money back on a portion of their wages. Many business owners have already taken advantage of this opportunity. Paychex CEO Marty Mucci said that this helps offset wages and wage increases as well as pay for new employees. Marty Mucci spoke to Jim Cramer last Tuesday on CNBC's "Mad Money." "We have already processed more than $3 billion in employee retention tax credits. This is cash that they can use to help them right now. Many small businesses are unaware of it. Sarah Crozier, spokesperson for Main Street Alliance, small business advocacy group, said that one of the most important programs is the employee retention credit. A lot of people view a tax credit as a reimbursement that comes later. But, this is paid upfront.How the tax credit worksThe ERC was established with the first federal Covid economic relief package. It has been recently extended to allow businesses to get more money back on wages paid to employees in 2020 or 2021. Businesses can receive money for wages paid up to the end 2021, as well as retroactive payments for 2020 wages. Eligible companies can get up to 70% back up to $10,000 in wages or $7,000 per employee for each of the quarters of the calendar year. This could result in a total cash return of up to $28,000 per employee each year. Because the Employee Retention Credit is intended for small and medium-sized businesses, you must currently have at least 500 employees to be eligible. Businesses must see a 20% decrease in gross receipts during the 2021 quarter, compared to the quarter in 2019. If they don't, they will need to be partially or completely shut down by the government during the quarters they claim the ERC. To qualify, gross receipts must be below 50% in a calendar quarter under the 2020 CARES Act. This is in comparison to the same quarter in 2019.How to file an IRS claimThe ERC is a way for employers to reduce their liability and claim retroactively cash if they have already paid 2020 taxes. The ERC money can be claimed back as a refund of taxes paid. Businesses must either fill out Form 7200, an advance payment form with the Department of Treasury's Internal Revenue System or submit it through Paychex, a payroll company. Crozier stated that many of these businesses are struggling to make ends meet and it is important to get the money as soon as possible. A credit can be a dollar-for–dollar cash refund, up to $7,000 per quarter in 2021. In 2020 it was 50% of a maximum $10,000 per employee annually. A credit may be granted to start-ups that were established after February 15, 2020, but had to close down. It can lower employee liability and reduce the amount of employment taxes that would otherwise have been paid. This includes federal income tax withholding and Medicare taxes. Tony Nitti, a partner in the RubinBrown tax services group, stated that the quarter for which a company is filing employment taxes makes a significant difference. This makes 2020 the year when more labor costs will be eligible. This is because businesses are better in 2021 than they were in 2020, so it is possible that the requirement for a decrease in gross receipts may not be met. Nitti advised businesses to be aware of the requirements and only claim the ERC money for quarters that they are eligible.How to count wages
