Business Recovery After Pandemic Financial Loss

Many businesses were forced to close or open under strict restrictions during the pandemic. Supply chains were also disrupted due to limited capacity rules or full suspensions of business operations. In addition, people were less eager to leave their homes during the pandemic when it was not required. All of these factors resulted in a serious financial loss that continues to hurt many businesses as the economy still suffers from inflation.

To help businesses, the CARES Act established the Employee Retention Credit, which rewards eligible businesses that paid qualified wages to employees during the pandemic. Through this refundable tax credit, businesses can still earn up to $21,000 per employee if they apply before April 15, 2025.

The Impact of COVID-19 on Businesses

Several factors led to financial loss for businesses during the pandemic. COVID-19 created health uncertainty that forced some or all employees to stay home. Government regulations required certain businesses to either partially or fully shut down business operations for an indefinite amount of time. In all the uncertainty, people were less likely to leave their homes for reasons that were not required, such as going out to a restaurant.

For businesses that were able to stay open, supply chain disruptions due to the pandemic created obstacles. This also led to higher expenses for certain goods that businesses needed in order to operate. Even in 2023, businesses are suffering from higher expenses while recovering from lost earnings during the 2020 and 2021 tax years.

How the CARES Act Helps Businesses

To help employees stay on payroll during the pandemic, the CARES Act incentivized small to mid-sized businesses through the Employee Retention Credit. The ERC Tax credit is a refundable tax credit that rewards businesses that paid qualified wages to W-2 employees during the 2020 and 2021 tax years.

During the pandemic, the Paycheck Protection Program was also established. Similar to the ERC tax credit, the PPP loan required businesses to apply using qualified wages they paid to employees during the pandemic. While the ERC tax credit is still available, the PPP loan is no longer available for businesses to apply. Businesses that did receive a PPP loan cannot use the same qualified wages used towards PPP when applying for the ERC tax credit.  

What Types of Businesses Receive a Refundable Tax Credit?

Businesses across any industry can apply to receive the ERC refundable tax credit. There is no limit to the type of business that can apply. However, businesses cannot have over 100 full-time employees for the 2020 tax year or over 500 full-time employees for the 2021 tax year when applying. In addition, businesses only qualify under the rules specified by the IRS for the ERC tax credit.

How to Apply for the ERC Refundable Tax Credit

To apply for the ERC refundable tax credit, you must amend your 2020 or 2021 tax return. Businesses must use qualified wages paid to employees during the pandemic to apply for the ERC tax credit. These wages will determine how much your business may receive from your application.

When Should I Apply for ERC?

The ERC refund processing time can vary. So, the sooner you apply for ERC, the better. The IRS has already experienced delays in approving applications for the refundable tax credit. You do not want to wait longer to receive your tax credit, as it could seriously help your business financially recover from pandemic losses. To get in line faster with the IRS, it is best to complete the application with the help of an ERC specialist, typically a certified tax attorney or tax consultant, experienced in handling applications to the IRS.