Why the Employee Retention Credit was Crucial for Small Businesses During COVID-19


As the COVID-19 pandemic swept across the world, small businesses were hit hard and fast. With closures, restrictions, and economic uncertainty looming over them, many struggled to stay afloat. However, there was one saving grace that provided some much-needed relief: The Employee Retention Credit (ERC). In this post, we’ll explore why this credit was crucial for small businesses during the pandemic and how it helped keep their doors open.

So, sit tight and get ready to discover just how valuable this little-known tax credit truly is!

What is the Employee Retention Credit and Who Qualifies?

The Employee Retention Credit (ERC) is a refundable tax credit for employers that are experiencing financial hardship due to the COVID-19 pandemic. If you run a business that has less than 100 full-time employees, this scheme will be available to you. It can be used to offset 50% of payroll costs, which amounts to up to $5000 per employee. To be eligible, businesses must have either been forced to close due to government orders or have experienced a significant decline in revenue. Like that of a small employer’s relief which improves business cash flow, ERC provides a great opportunity for your business to bounce back.

The employee retention credit was created as part of the CARES Act, and was initially set to expire on December 31, 2020. However, the credit has been extended through June 30, 2021 as part of the American Rescue Plan.

Benefits of Utilizing the Employee Retention Credit

One of the most significant advantages that companies can gain from utilizing ERC is an increase in employee satisfaction and loyalty. By providing financial support to retain employees during uncertain times, companies demonstrate their commitment to their workforce, which translates into increased engagement and productivity levels. This benefits the company’s bottom line and also enhances the brand image as a responsible employer that values its employees’ wellbeing.

Additionally, it provides businesses with substantial tax credits, enabling them to reduce their payroll tax liabilities significantly. Companies can utilize these funds to invest in critical areas such as R&D or marketing initiatives, further strengthening their competitive positioning in the market.

Furthermore, by retaining experienced workers instead of hiring new ones frequently, organizations save on recruitment costs and reduce training expenses required for new hires.

Overall, using Employee Retention Credit offers several long-term benefits for businesses ranging from cost savings to improved organizational culture and employee retention rates.

How Has COVID-19 Impacted Small Businesses?

The COVID-19 pandemic has brought unprecedented challenges for small businesses, with the keyword “uncertainty” being a constant theme. Many small enterprises have been forced to shut down their operations, while others are struggling to stay afloat in an economy that is crippled by the virus’s impact. The mandatory lockdowns and social distancing measures have led to significant disruptions in many sectors, including retail, hospitality, and tourism.

With fewer customers coming through their doors or buying online products and services, revenue streams have dried up for many business owners. Additionally, supply chains have been disrupted as factories were shuttered due to virus outbreaks among employees leading to product shortages at times when demand was high.

Small businesses also face operational challenges such as reduced staffing levels due to illness-related absences or childcare issues caused by school closures during the pandemic period. In addition to these logistical problems that affect daily operations of businesses on a micro-level scale, there is also macro-level uncertainty regarding how long this adversity will last.

It is evident that COVID-19 has had a severe impact on small businesses across various industries globally. Despite government efforts such as stimulus packages aimed at providing relief for impacted companies; business owners must develop innovative strategies like e-commerce solutions and remote work arrangements if they want their enterprise to thrive in an environment where change is inevitable!

Eligibility Requirements for the Employee Retention Credit During COVID-19

To be eligible for the Employee Retention Credit, businesses must have experienced either a full or partial shutdown due to a COVID-19 related order from a governmental entity or have experienced a significant decline in gross receipts.

To claim the credit, businesses will need to file Form 941 for each quarter in which they are claiming the credit. They will also need to maintain appropriate payroll records and documentation to support their claim.

The credit is refundable, meaning that if it exceeds the amount of taxes owed, the business will receive a refund for the difference. The credit is also available for offsetting payroll tax deposits and can be claimed on amended returns for 2020.


In conclusion, the Employee Retention Credit was a crucial tax incentive for small businesses during COVID-19. It allowed employers to retain their employees and keep them employed despite the financial strain caused by coronavirus restrictions. The ERC helped millions of small business owners stay afloat and kept countless people employed throughout this difficult time.

Hopefully, in the future, we can find similar solutions that will help small business owners weather economic downturns like we experienced during 2020.


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