The media. Oh the media. Sometimes I wonder if the reporters truly are that clueless or that complicit. For those who got my newsletter recently, you know I put in there a story about how Scripps TV news stations pretty much astroturfed, word for word, anti-unemployment messaging. See we were told that these poor pitiful widdle businesses were just sufferin’ so bad without their empwoyees.
They could not staff we were told.
They could not open we were told.
We were told a lot of things, and because of it, and Republican governors, millions of Americans are needlessly suffering due to their PUA being cut off.
There is one thing we were not told, however. We were not told that there was a way, but it had to be done fast, to get a 64 percent or so discount off of employee wages up to $10,000 per quarter, for every employee. We were not told that.
Introducing the Employee Retention Credit. The Employee Retention Credit was passed with the original CARES act in March of 2020. What it does, is as of now, allows businesses with up to five hundred employees to get a refundable tax credit of up to 70 percent for the first $10,000 of wages, per employee, per quarter.
Yes, I said refundable. The tax credit goes against employment taxes and goes directly to, and only to, the employer. The employee still pays their full freight.
Amount of the Credit for 2021
For 2021, the credit is equal to 70% of up to $10,000 in qualified wages (including amounts paid toward health insurance) per full-time employee for each eligible calendar quarter beginning Jan. 1, 2021, and ending June 30, 2021. This works out to a maximum credit of $14,000 per employee ($7,000 per quarter) for the period.
The credit is applied to your portion of the employee’s Social Security taxes and is fully refundable. This means that the credit will serve as an overpayment and be refunded to you after subtracting your share of those taxes. The table below illustrates your payroll costs for one full-time employee (the term “employee” includes full-time, part-time, or other basis) for the first half of 2021 based on two qualified quarters. The table only includes FICA taxes as a cost since other costs would not be affected.
2021 |
Qualified |
Wages |
FICA |
Reg. Payroll |
Credit |
New Payroll |
Q1 |
Yes |
$4,800 |
$367.20 |
$5,167.20 |
$3,617.04 |
$2,767.20 |
Q2 |
Yes |
$4,800 |
$367.20 |
$5,167.20 |
$3,617.04 |
$2,767.20 |
Total |
Total |
$9,600 |
$1,468.80 |
$11,068.80 |
$7,234.08 |
$5,534.40 |
The table shows that your regular payroll costs for this employee for the first half of 2021 would have been $11,068.80. With the ERC, your payroll costs drop to $5,534.40. Your credit for this employee for Q1 and Q2 exceeds the amount that you pay in Social Security taxes. How to get your credit is covered in the next section.
The idea was to keep businesses from laying off their employees. But see Rule of Claw noticed something. Republicans were desperate to end unemployment by the end of June and with one exception, Arizona, they did. But why June? See if this is just a retention credit, then hiring people would not result in a credit right?
The American Rescue Plan again extended the ERC to wages paid through Dec. 31, 2021. The American Rescue Plan also enhanced the ERC in two important areas. However, since none of the changes were retroactive, the following rules apply only for wages paid in the third and fourth quarter of 2021.
First, the American Rescue Plan added a third category of eligible employers: recovery startup businesses. A recovery startup business is generally one that began after Feb. 15, 2020, and has an average gross receipts of less than $1 million. Although additional employers will be eligible under this new category, recovery startup businesses may claim a total of only $50,000 in ERC for the third quarter in 2021 and $50,000 for the fourth quarter of 2021.
So if you are a restaurant starting up, the retention credit becomes a hiring credit, get it? But you need to, as a startup, take full advantage of that by starting at the beginning of the third quarter, (July 1) and all the way through the fourth quarter (Dec. 31) for your payroll.
So for your startup, you truly need to get as much labor as you can at a discount as fast as you can. But you say, “Ok Claw. I get it. But even still, if the bulk of the impetus to force people back to work is the ERC, how many new businesses with new hires could that possibly apply to?”
New business statistics show that applications tumbled in Q4 with just over 1.1 million applications, before rising again to 1.36 million in the first quarter of 2021. In March 2021 alone, more than 440,000 new business applications were filed.
Analysts credit a part of the recent increase to a “need” from people after having lost their jobs during the pandemic; starting their own business is a way to potentially acquire lost income. Some are also doing so to meet rising and changing consumer demands.
440k in March alone. But in total, as the above chart shows? 5,024,313. Over five million businesses qualify for the recovery credit under the startup provision, and that is if I exclude all of Q1 2020, which I don’t have to, because any business started after February 15th, 2020 is eligible, basically half the quarter. Toss in another 500k or so.
Also of note is that March is when President Biden got ARPA passed. ARPA is when the new startup provision for small businesses was implemented. Do you remember when Joe Manchin took four weeks off of PUA seemingly single-handedly? He brought it back to September 4th, remember?
Senate Democrats are walking back some planned changes to federal unemployment benefits after objections from Sen. Joe Manchin, D-W.Va., threatened to derail President Biden's $1.9 trillion coronavirus aid package.
The new plan is to extend the current $300 weekly federal unemployment payments through Sept. 6, rather than the end of September as Senate Democrats had planned. The first $10,200 in unemployment benefits received in 2020 by households earning $150,000 or less would also be nontaxable.
Democrats thought they had unanimous agreement within the party to provide an additional month of benefits and to extend the tax-free status to all people who claimed unemployment last year. But Manchin's objections cropped up at the last minute before a planned Friday afternoon vote, forcing negotiations that dragged into the night.
Well, by ending PUA in September, it insures an influx into the labor market for Quarter 3, whereas if they wait until October, it only applies to Quarter 4. I am not saying that he did this intentionally for these purposes as I was not privy, obviously, to internal negotiations.
I am saying the timing is interesting. I will allow it could be coincidental and cast no aspersions. But it is interesting.
Thus, if you can get an employee at the beginning of September, rather than the end, that leaves you another quarter to get employees at a discount.
Let’s figure the average employee works 520 hours per quarter. Let’s call this a sandwich shop. Let us also consider employers are paying out about $13 per hour to fast food workers.
That amounts to $6760 per employee. For that amount the employer is responsible for $419 in employment taxes. But because each employee is worth 70 percent of wages the employer is now eligible for a credit of $4732, less the employment taxes, well that is a $4313 offset against employee wages.
It amounts to a 64 percent discount off of wages for Q3 and Q4.
But only for Q3 and Q4. After that? Well come January we could be looking at a layoffpocalypse because these employees become much less useful at full wages.
So all of that hand wringing, the crying, the “nobody wants to work” claptrap we were fed was all to accomplish, in my opinion a gold rush of wage credits for startup businesses.
It makes perfect sense. But it only works if their is no unemployment being handed out, even if it is warranted, and only works for a limited time. ARPA passes in March, new business application skyrocket, and Republican Governors find themselves in a real hurry to end PUA before July.
And what if you can’t find work? Take my Mom, who put in 28 applications, as Arizona required, in order to qualify for PUA benefits before the $300 supplement was pulled. Do you know how many callbacks she got?
Zero. Nothing. Not a one. Nada.
But guess what? Her help is still gone.
Clearly one government program, combined with right wing media, the Chamber of Commerce, and local TV got the upper hand on another, and it was not supposed to be this way. Or was it?
And who lobbied to create this startup credit?
New Hampshire Senator Maggie Hassan, along with Indiana Senator, and Republican, Mike Braun.
WASHINGTON – Earlier this week, U.S. Senators Maggie Hassan (D-NH) and Mike Braun (R-IN) introduced a piece of legislation aiming to help small new businesses bounce back from the COVID-19 pandemic.
The Recovery Startup Assistance Act, also known as S.551, aims to expand employee retention tax credit eligibility to include certain startup businesses. If passed, the new small businesses would receive a tailored version of the employee retention tax credit that gives advance payments for payroll and healthcare expenses.
The bill is part of the American Rescue Plan Act, the official name for the $1.9 trillion COVID relief bill currently being discussed in the Senate.
Now did Senator Hassan envision these unintended consequences that would lead, in my opinion, to the destruction of PUA? I doubt it. And I certainly have no reason to think she intended for these consequences to arise. Braun? Who knows? But I do know this-at the end of negotiations, two things happened and they were both spurred by Manchin. One, PUA was cut back a month. Two, it was cut by $100 per week.
Now in a vacuum, helping small businesses is generally something I can get on board with, but this created a situation where one vested interest, Chambers of Commerce, had a whole lot more lobbying power than did another vested interest: poor hungry people just trying to survive.
They used the media, and insidiously, leveraged the local press to spin and castigate the unemployed.
That said, I would like to see the credit continued for one reason and with one change. I want to avert a mass of layoffs in Q1 2022, and I want to see the refundable credit split evenly with the employee.
This one development tilted the playing field not just far to the right, but far to the immoral. People are still suffering, and aid is drying up. To me, this is just another example of what happens when the people who need help the most, are drowned out by lobbyists and media designed to prop up business, and I mean big business, because the exact parameters of the startup recovery portion of the ERC is right in the wheelhouse, from a revenue standpoint, of fast food franchises.
Fast food business owners, you might recall, being the bulk of the whining over PUA.
We need real reform in this country, and it needs to start at the top. And we particularly need to move unemployment out of the hands of the states and into the purview of the Department of Labor. But this all takes time, energy, lobbying, sweat, you name it, and we just don’t seem to have the political will to do something like that.
I am not sure we have even the allies. But this I know, people are suffering because of this media astroturf, and the ensuing PUA cancellations, and they are not anymore apt to work for garbage wages in miserable environments now, than they were before.
They want a piece of some pie too. But in this country, they are rarely ever handed a fork, much less a plate, much less have a whole slice carved out for them. PUA crumbs were too much to bear for the greedy U.S. Chamber of Commerce and now half of the country loses even those.
There are those content to let the poor eat cake.
So long as they are on their hands and knees, scraping the crumbs off the floor, that is.
They wouldn’t want them to have it too good.
You know, like with a seat at the table and all..
-ROC
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