Here's how the senate infrastructure bill could strip struggling businesses of much needed cash:
In 2021, the ability to demonstrate a significant decline in gross receipts is also available for employers if the immediately preceding quarter reflected a greater than 20% gross receipts decline when compared to 2019.
As the business is deemed an eligible employer in our example, and assuming they employ less than 500 full time employees in the 2019 taxable year, they were able to claim up to a $7,000 credit for each $10,000 of wages paid to each employee in the fourth quarter of 2021. Assuming this business had 10 employees that were paid at least $10,000 in the quarter, the business would have been able to generate a $70,000 employee retention credit.
Many businesses have been cash forecasting with the anticipation for the employee retention credits through the end of December 31, 2021. The need for cash is readily apparent. More and more businesses are struggling to hire workers, as many are hesitant to come back to work due to a variety of reasons including extended unemployment benefits, fear of the Delta variant surge, and the unknown for families with young children.
So, employers are sitting there scratching their heads. On the one hand the government recognized that the ability to recover from the COVID- pandemic was going to take time, and therefore extended the employee retention credit through the end of the 2021 year in March of 2021. Now Senators are proposing to eliminate the benefit and essentially indicating that businesses are no longer in need.
So, who is left holding the bag if the ability for business to obtain the fourth quarter employee retention credit is removed? Small business owners that were relying on over $50 billion of stimulus funding to recover and compete in the post-COVID world are now left to find different cash sources in order to survive or may even be forced to close their businesses. If they are able to identify alternative funding streams, they will most likely be coupled with additional fees and interest.
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