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by Akiva Goldstein | October 29th, 2021
What’s Happening With The ERTC (Employee Retention Tax Credit or Employee Retention Credit 2021) – What is the employee retention credit?
As small businesses struggle to survive an unprecedented pandemic, one vital life raft that has helped employers keep afloat is the ERTC program. Also known as the IRSEmployee Retention Tax Credit, the program was initially launched in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES act employee retention credit).
To put it mildly, the ERTC, also called the ERC, has been a blessing for small business owners as we navigated the turmoil of Covid-19. Of course, there are other government programs that help businesses (like the PPP and EIDL), but the employee retention credit and ppp are different.ERTC is unique in that the funds 100% go towards payroll costs (and no other associated costs). Because of this, the ERTC has been instrumental in stabilizing the economy and has given much-needed support to the economic backbone of this country with much less cause for concern of fraud or wasted resources.
Employee Retention Credit FAQ:
But now that’s changing. And it’s changing sooner than the government originally promised.
Recently the Senate announced the Employee Retention Tax Credit will be folded into the Infrastructure bill, meaning that the ERTC will end earlier than promised. The American Rescue Plan Act, P.L. 117-2, enacted March 11, made the ERTC Credit available to eligible employers for wages paid during the third and fourth quarters of 2021. However, the Senate decided to terminate the ERTC Tax Credit after three quarters (ending in the third-quarter on September 30, 2021) and plans to funnel the remaining funds into the Infrastructure bill.
So, what does the ERTC change mean for small businesses? Nothing good.
As you can imagine, the whiplash has sent employers into a state of chaos. These are the same business owners who miraculously clawed their way through Covid-19. Now we have been thrust into a sea of unknown, into a state of confusion, and ultimately into a position where we must make difficult financial and moral decisions.
Consider the gravity of the situation. Since employers were promised funds for the next quarter, we baked the projected financial relief into our fourth-quarter plans. Some employers hired additional employees they couldn’t otherwise afford. Now they must lay off these same employees, which negatively affects both business owners and the morale of the employees themselves. Or consider employers who may have opened new offices, signed leases, or made other massive business changes based on expected funds promised by the government. Ultimately, the governments’ renege will lead to needless financial strain on an already vulnerable economic sector.
This decision is as illogical as it is questionable; The Employee Retention Credit 2021 funding was modified to include a “recovery Startup Business” that began carrying on any trade or business after February 15, 2020 . While startups are indeed integral to the economy, the rate of failure among new business ventures is near 90%.
With so many businesses struggling to survive, it feels unjustifiable to divert funds from established small businesses to newer, unstable startups. Logically and based on the principal of “Opportunity Cost”, the government should allocate revenues to the companies that have the greatest likelihood of returning the investment. These are the companies who have been around for five years, not five months.
To hurt our strongest businesses in such trying times feels both cruel and needless. The funds that are being re-directed make only a tiny fraction of an enormous infrastructure bill; surely there are better uses for the 8 billion Employee Retention Tax Credit funds as it makes less than 1% of the 1.2 trillion Infrastructure bill.
Sadly, this isn’t just a hypothetical argument. This decision has real-world consequences for real American families; the ramifications are profound. For employers, it’s now no longer about making profit, but rather breaking even. More than 600,000 businesses in America have permanently closed their doors, sending our economy into a perilous tailspin. On the individual level, business owners fear looming clouds of debt that they one day may not be able to climb out of.
Let’s take the case of my own business. Having owned my IT Consulting, IT Support, and Managed IT Services firm for over 20 years, I certainly am no stranger to the hardships and nuances of owning a business. We make decisions based on the limited information we have at the time – that’s reality of owning a business. What’s so frustrating about this decision is it’s not that we were operating off limited information, it’s that the guarantee for specific funds has been taken away.
Now I face an enormous moral dilemma: to let go of employees that I hired a mere two to four months ago. To add salt to injury, many of these employees left other jobs to join my team. We also structured new contracts at a lower “trial period rate” through Dec 31, 2021, based on the promise of funds from the ERTC. Unfortunately, this means I must absorb those costs on my own.
While my business will G-d willing, most likely survive in spite of the employee retention credit ending early, I can’t say the same for other small businesses, nor can I dismiss the emotional and financial hardship my employees will face once I let them go.
2021 Employee Retention Credit
Small businesses are critical to this country’s economy, and they have been since the founding of America. For small business owners who are affected by this puzzling decision, it’s important to voice your opinions and concerns so that we can make meaningful change. Please start talking about the 2021 employee retention credit and how it should not be taken away for this 4th quarter.
Of course, we can’t take away funds from startups since they too are counting this money into their budgeting plans. Instead, what I propose are changes for the future. If any future programs are enacted, the government must state clearly what will be available at a minimum and project possible forecasts as the financial landscape evolves. For example, if the government approves the third quarter, simply say that the approval of the fourth quarter will be reviewed once we get closer to it. That way, employers don’t commit to significant financial commitments prematurely.
We all understand Covid is a dynamic, ever-changing situation. But we must pay more financial attention to older businesses. Let’s fortify established businesses. Let’s allocate money to businesses with strong ROI. We can’t allow our country to squander established businesses, or else we’ll be seeing a lot more boarded-up doors and windows.
For more info on the Employee Retention Credit 2021 change and our case study please visit:
Akiva Goldstein is the founder of OnsiteIn60, a New York based IT Consulting and IT Support firm. Nearly two decades later, companies all over the East coast count on OnsiteIn60 for their IT support and services. One of his greatest skills, as a businessman and a CTO, is the ability to bridge together a client’s business needs with their necessary IT and Cyber Security requirements. Akiva has also co-wrote a book on Cyber Security called On Thin Ice.