Get Up to $26K Per Employee with Employee Retention Credits
More than 3.4B in Stimulus Funds Retrieved for 4000+ Companies
Made personnel adjustments due to issues with supply chain, capacity, project delays, or other COVID-related challenges? You may qualify to file for ERC!
In response to the many challenges faced by small businesses during the coronavirus pandemic, Congress passed relief legislation including the Employee Retention Credit. Where the PPP gave businesses loans to help with their payroll, the ERC provides them with a refund of their payroll taxes, up to $26,000 per employee to reward them for keeping people paid during the pandemic.
Introduced through the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Employee Retention Tax Credit was established to encourage eligible employers to keep their employees on the payroll during the COVID-19 outbreak. It’s a refundable and non-refundable tax credit that businesses can claim on qualified wages, including some health insurance costs, paid to employees.
Under the CARES Act of 2020, businesses may be eligible for the ERC if they had employees and operated a trade or business, which includes tax-exempt organizations. However, with limited exceptions, it does not apply to governments or their agencies and instrumentalities. A small eligible employer for 2020 is an employer that had 100 or fewer full-time (30 hours per week or more) employees on average per month in 2019, and for 2021 had 500 or fewer full-time employees on average per month in 2019.
Your business may be eligible for the ERC if its operations were fully or partially suspended by governmental COVID-19 orders limiting commerce, travel or group meetings or experienced a significant decline in gross receipts during 2020 or the first three quarters of 2021. If your business started to operate on or after February 15, 2020, it may qualify to claim the ERC for the third or fourth quarters of 2021 as a recovery startup business.
In general, ERC-qualified wages include those paid by employers to employees while operations were fully or partially suspended by governmental COVID-19 orders, or the business experienced a decline in gross receipts. What’s covered? Cash wages, both hourly and salaried, along with vacation pay and any other taxable wages. Qualified wages under the ERC program also include certain health plan expenses that are allocable to those wages.
Qualified wages under the ERC program are limited to the first $10,000 of compensation paid to any employee during a calendar year (2020) or calendar quarter (2021) and can be claimed for wages paid or incurred from March 13, 2020 through June 30, 2021.
Here’s a year-by-year breakdown of what the employee retention credit offers to eligible employers:
You can calculate your ERC based on total qualified wages. Those wages include health plan expenses paid by your employees. This calculation varies based on the number of employees your business had in 2020 and 2021, and other factors such as wages paid with PPP loans or wages paid to owners and their relatives.
The ERC equals 50% of the qualified wages for 2020 and 70% for 2021. Note that the maximum credit amount is for 2020 is $5,000 per employee for the calendar year and for 2021 is $7,000 per employee per quarter.
According to Section 4980H of the Internal Revenue Code, an FTE is someone who works an average of at least 30 hours per week or 130 hours per month.
Under the CARES Act, a tax-exempt business is considered eligible for the ERC if it passes either the Gross Receipts Test (GRT) or the Government Orders Test (GOT). You do not have to pass both tests to qualify.
No, your ERC is not a loan and does not have repayment terms. Why? Because it’s a refundable tax credit for businesses.
Employers who received the ERC for 2020 or 2021 or both, however, must amend their corporate income tax returns (and personal returns if a corporation is a pass through entity) for the relevant years.
Eligible businesses can retroactively claim the ERC for 2020 and 2021 by filing IRS Form 941-X to amend their filed returns (Form 941) for the quarters during which your business was an eligible employer. It is important to ensure that your Forms 941 for 2020 and 2021 were filed, received, and processed by the IRS prior to filing Form 941X. Unlike Forms 941, Forms 941X cannot be filed electronically. Before you claim the credit, make sure you’re equipped with the following information:
The ERC is a non-refundable and refundable tax credit that eligible employers claim against employment taxes for 2020 and 2021. Generally, a business must claim the credit on either Form 941 (uncommon) or by filing a Form 941X after filing Form 941 (common). After the IRS receives either the Form 941 or Form 941X, it assigns the form to a processor. After the credit is processed, the IRS will send the company a CP 210 notice that details the credit amount plus interest and then sends a paper check for the refund amount via USPS to the company’s address of record with the IRS.