ERTC and the R&D Tax Credit

The COVID-19 pandemic has created a challenging economic environment for businesses of all shapes and sizes. Now more than ever, these businesses are seeking out resources and advice as to how to move forward and put themselves in the best position for the future. One way companies can put money back into their pockets is through federal and state tax credits, including the Employee Retention Tax Credit (ERTC).

The House and Senate are considering new legislation that would remove certain restrictions to claiming the ERTC, maximizing the benefits of the program for small businesses. If approved, employers could claim the ERTC in addition to the R&D tax credit.

What is the ERTC?

In March of 2020, Congress passed the CARES Act as a response to the COVID-19 pandemic. One part of the CARES Act was the Employee Retention Tax Credit (ERTC), a payroll credit of up to $5,000 per employee, aiming to relieve some of the financial stress that many businesses are facing due to the coronavirus. The main purpose of the ETRC is to incentivize businesses to maintain their payroll, even if they have been negatively affected by COVID-19.

Possible Changes

Initially, there were limitations that prevented employers from claiming the ERTC if they received a PPP loan, which is also part of the CARES Act. Currently, the House and Senate are considering new legislation that would remove certain restrictions to claiming the ERTC, maximizing the benefits of the program for small businesses. If approved, employers could claim the ERTC in addition to the R&D tax credit.

The details and structure of the legislation are still being decided by the House and Senate. However, the government is attempting to use these tax incentives to pump money into the US economy, which could have a significant financial impact on small businesses.

• In addition to claiming the R&D tax credit, businesses can take advantage of the ERTC program — essentially stacking the credits on top of each other.
• The House and Senate are considering the expansion of eligibility to qualify a greater number of businesses.
• Congress has proposed increasing the size of ERTC credits for eligible businesses.

Since the ERTC is fully refundable, you can use the R&D tax credit against your FICA tax obligation first, then claim the ERTC, maximizing your tax benefits.

It’s important to note that the R&D tax credit and ERTC are both credits against your payroll tax. And since the ERTC is fully refundable, you can use the R&D tax credit against your FICA tax obligation first, then claim the ERTC, maximizing your tax benefits.

To maximize cash savings, companies should consider combining R&D tax credits and ERTC as a part of their payroll relief options with COVID-19 aid packages. Clarus R+D can help you navigate recent legislation to ensure you capture all available cash savings opportunities.

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