What is ERC

What is ERC, You May Ask?

The Employee Retention Credit (ERC) is a refundable tax credit for eligible employers that retained their employees during the COVID-19 pandemic. The credit is available to employers of all sizes, designed to encourage employers to keep their workers on the payroll.

To be eligible for the Employee Retention Credit, employers must have experienced a reduction in gross receipts compared to the same quarter in 2019. Employers can claim the credit for each employee they retain on their payroll from March 13, 2020, through December 31, 2020.

The maximum credit amount is $5,000 to $7,000 per employee per quarter. Companies can apply for the credit against the employer's Social Security tax liability and any excess amounts IRS refunds to the employer.

ERC is a tax credit program for retaining employees.

Determining Eligibility for the Employee Retention Tax Credit Refund?

As the COVID-19 pandemic continues, many businesses struggle to keep their doors open. The Employee Retention Tax Credit (ERC) is a refundable tax credit that can help companies to keep their employees on the payroll. But what is the ERC, and how do you know or determine your ERC eligibility?

The purpose of the ERC is to offset the cost of keeping employees on the payroll. To be eligible for the credit, companies must have experienced a decline in gross receipts of at least 50% for 2020, comparable to the same quarter in 2019. The qualification ends when or if the revenue reductions in 2020 get back to 80% of the 2019 level. For 2021 business must have a decline in gross receipts of at least 20% that correlates to the exact quarter in 2019 (2020 if your company was not in business during the quarter in 2019).

Companies partially closed due to COVID-19 restrictions may also be eligible for the credit.

How Does the Employee Retention Credit Work?

Employers can claim the ERC for qualified wages paid on their quarterly employment tax returns after March 13, 2020, and the fourth quarter of 2021. The ERC is refundable, meaning that if the employer's employment taxes withheld are less than the amount of the credit, the employer will receive a refund for the difference.

Does the Employee Retention Credit Have to be Paid Back?

No, the tax credit does not have to be re-paid. The credit is available for qualified employee wages from March 13, 2020, until the end of 2021. Companies can claim the Employee Retention Credit on their quarterly employment tax returns (Form 941). Companies can apply the ERC against the employer's share of Social Security taxes owed.

Who is eligible:

Businesses must have less than 100 full-time equivalent employees for 2019 or less than 500 full-time employees for the first three quarters of 2021 to qualify for the ERC. The credit is available for companies that are fully or partially closed due to government orders or have experienced a significant decrease in revenue. Businesses can use the credit to offset the cost of employee wages and health insurance premiums.

Is the ERC Only for Small Businesses with Full-time Employees?

The Employee Retention Credit (ERC) is a tax credit available to eligible employers who retain their employees and pay them wages.

The ERC is a refundable tax credit, meaning eligible employers can receive a refund of up to 50% of their qualified wages for 2020 and 70% for 2021 if they meet specific requirements.

Employers must have experienced either a full or partial shutdown because of COVID-19 or have experienced a significant decrease in gross sales to be eligible for the ERC. In addition, employers must have retained their employees and paid them wages during the shutdown or reduction in business.

While the ERC is available to all businesses that meet the eligibility requirements, the tax credit is only available for companies with full-time employees.

How Much Is the Employee Retention Credit Per Employee?

Businesses must have fully or partially suspended operations due to orders from a governmental entity limiting travel, commerce, or group meetings due to the COVID-19 pandemic to receive the employee retention credit. The credit is available for each eligible employee that the employer retains; the credit is 50% of the capped $10,000 of qualified wages paid to that employee for 2020—up to 70% of qualified wages for 2021.

So, if an employer pays an eligible employee $5,000 in wages during the covered period, the employer can claim a $2,500 tax credit for Q2 - Q4 2020. The maximum tax credit an employer can claim is $5,000 per employee for 2020. The maximum tax credit an employer can claim is $7,000 for Q1 - Q3 2021.

What are Qualified Wages in Calculating ERC?

Qualified wages for ERC calculations are those paid to employees after March 13, 2020, and before January 1, 2021. The amount of qualified wages that an employer can take into account for each employee is $10,000, which means that the maximum credit an employer can receive for any employee is $5,000 for 2020 and $7,000 for 2021, respectively.

How Do I Calculate the Amount of the Credit?

The Employee Retention Tax Credit (ERC) is a tax credit used to offset the cost of retaining and rehiring employees. The credit equals 50 to 70% of the eligible wages paid to employees during 2020 and 2021. Employers can get a maximum of $26,000 per employee. You will need to know your total eligible wages and the number of employees you have To calculate the amount of the credit.

Employers could claim the credit if they had less than 100 full-time equivalent employees in 2020 or less than 500 employees in 2021. If you had more than 100 full-time equivalent employees in 2020, IRS would reduce your credit by the amount that your wage expenses exceed $6 million. For example, if your wage expenses are $7 million, your credit will be reduced by $1 million. The ERC is available for 2020 and the end of the calendar quarter for 2021.

Can I Still Claim the ERC?

Yes, to be eligible, an employer must:

1. Have been carrying on a trade or business during 2020, and

2. Have operations fully or partially suspended because of orders from a governmental authority limiting travel, commerce, or group meetings due to COVID-19.

If your business is eligible for the credit, you can claim it for each qualifying employee you retain on your payroll. The payroll tax credit is available for wages paid from March 13, 2020, through December 31, 2020.

Can you get ERC and the Paycheck Protection Program (PPP)?

The Paycheck Protection Program (PPP) is a loan program to help small businesses keep their workers employed during the pandemic.

Yes, you can get both ERC and PPP loans, or if you have already received a PPP loan, you can still apply for ERC.

How do I apply for the ERC Program?

Apply for the ERC Program Application for the credit through your business's applicable employment tax return.

The refundable credit is available to employers of all sizes, including tax-exempt organizations. Businesses must complete Form 941 to claim the credit, Employer's Quarterly Federal Tax Return. Companies can claim the tax credit on the return for the quarter in which the company paid eligible wages for the designated periods. For example, if a business paid qualified wages in July 2020, it would claim the credit on Form 941 for the 2nd quarter of 2020 (April-June).

Don't hesitate to contact us if you have questions about whether your business is eligible for the ERC or how to claim the tax credit.

Why is working with us the best way to file for ERC?

As the COVID-19 pandemic continues, many businesses struggle to keep their employees. The Employee Retention Tax Credit (ERC) is a way for companies to get money back from the government for keeping their employees on the payroll.

The ERC is a refundable tax credit available to employers experiencing financial hardship due to the pandemic. The credit equals 50 - 70 percent of the qualified wages paid to employees, up to $10,000 per employee. To be eligible for the credit, employers must have experienced a decline in gross receipts during the pandemic.

There are many reasons why working with us is the best way to file for the ERC.

First, our expertise lies with payroll, specifically and exclusively in helping business owners file for ERC . We have experience dealing with the IRS and know how to navigate the process. We will also help you calculate your eligibility and maximize your credit.

Conclusion: The ERC Helps Companies Retain Employees and Reduce Turnover

The ERC is valuable in helping companies to retain employees and reduce turnover. The ERC allows businesses to claim a tax credit for a portion of the wages paid to eligible employees for 2020 and 2021.

The business employees must have been full-time or part-time workers for at least one year to qualify for the credit. Employers can claim the tax credit on their annual income tax returns. To find out if you are eligible for ERC, click the link below:

What is ERC - Employee Retention Tax Credit Funding Program