If you are a business that started after February 15, 2020, you, unfortunately, discovered that there was not much government support available to you. The Paycheck Protection Program (PPP), the Employee Retention Tax Credit (ERC) and other help were only available to businesses that started prior to that date, reason being that the government figured that you knew what you were getting into if you started after that date, therefore, you did not need any relief.
On March 11, 2021, President Biden signed the American Rescue Plan (ARP) Act of 2021, which extended support to existing businesses and also included a provision, Recovery Startup Business Credit (RSB), for new businesses offering up to $100,000 in free money, the goal being to bring back businesses that did not survive 2020.
The RSB loosely follows the rules of the Employee Retention Tax Credit as to how it is calculated with a few restrictions and conditions. First off, the business must have begun operations after February 15, 2020. That is what signifies a ‘recovery startup’ business. In keeping with the theme of directing support to the small business community, a business will be eligible if they have average annualized sales of $1,000,000 or less. If you have met those two qualifications, then the remainder should be smooth sailing. Unlike the ERC, a business does not need to have suffered a reduction in income or have been subject to a full or partial suspension.
The free money a business is eligible for is 70% of the wages it paid to its employees, up to $7,000 per employee, to a maximum of $50,000 per calendar quarter. This begins on July 1, 2021, therefore, there are two quarters for which the business will be eligible. That means up to $100,000 is available just for being a small business that started operations after February 15, 2020.
The money is received in the form of either a payroll tax credit or a refund on the quarterly 941 payroll tax return. Considering 70% of wages is going to exceed any payroll tax due, the majority of the money received will be in the form of a refund when the payroll tax return is filed. Using a payroll service that can e-file the return is optimal in expediting the refund, which should take about three weeks after the tax return is transmitted. If the payroll tax return is mailed in, we estimate a three-month turnaround. There is no requirement to spend the funds in any way, once received.
If you are a new business, we welcome you to reach out to us so we can assist in the determination for eligibility, calculation of the credit and the filing. Contact us!
While I make every attempt to ensure the accuracy and reliability of the information provided in this article, the information is provided “as-is” without warranty of any kind. As with every other COVID-19 related Act, situations and rules get defined over time and things can and do change. PayMaster, Inc and Romeo Chicco do not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information contained. Consult with your CPA, Attorney, and/or HR Professional.