Helpful Employee Retention Credit FAQs
The Official ERC FAQ
Popular Questions on Employee Retention Tax Credits
The CARES Act’s Employee Retention Credit is a fully refundable tax credit. For the 2020 program, the ERC is equal to 50% of qualified wages (including allocable qualified health plan expenses) that eligible employers pay their employees. This applies to wages paid after 3/12/2020 and before 1/1/2021. The maximum amount of wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an employee is $5,000.
For the 2021 program, the credit is increased to 70%, and the limit is $10,000 per quarter. This means the annual maximum for an employee is $26,000.
The tax credit offsets all withheld federal employment taxes including federal income tax withholding, Employer FICA and Medicare. Any excess credit will be refunded or advanced by the IRS.
Eligible Employers for the purposes of the Employee Retention Credit are those that carry on a trade or business during calendar years 2020/2021, including a tax-exempt organization, that either:
- Fully or partially suspends operations by a governmental order, or
- Experiences a significant decline in gross receipts during a calendar quarter when compared to 2019
The operation of a trade or business may be partially suspended if an appropriate governmental authority imposes restrictions upon the business operations by limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes). This can be a “Stay at Home Order” for non-essential businesses, a capacity restriction, or other possibilities.
Yes, ERC stands for ‘Employee Retention Credit’, also known as the ERTC ‘Employee Retention Tax Credit.’ This program was created by the Coronavirus Aid and Relief Act in 2020 to help businesses keep employees on their payroll. Both Employee Retention Tax Credits (ERTC) and Employee Retention Credits are refundable tax credits.
Qualified wages are compensation provided to employees during an eligible period. An eligible period is either:
a) the time during which the trade or business is fully or partially suspended by a governmental order, or
b) for 2020, any calendar quarter during which gross receipts are 50% less than the amount received during the same quarter of 2019; for 2021, any calendar quarter during which gross receipts are 20% less than the same quarter of 2019
Like most economic development business tax incentive programs, the Employee Retention Credit has certain complexities that may impact receiving an accurate, optimized, and audit-ready number. It is important to fully document processes and procedures, organize your records, and avoid any risk areas in advance of a potential IRS audit of the claim, which may come years later.
The ERC has numerous issues such as Controlled Group criteria, documenting qualification methodology, coordination with PPP loans, allocating healthcare expenses to the appropriate time periods, etc. Your payroll company does not have all this information, and your CPA may not have the specific expertise to ask.
The use of ERC specialists can help prevent disaster and/or leaving money “on the table”.
Perhaps the most complicated aspect of the ERC program, separate businesses under common ownership that meet IRS Controlled Group criteria must be evaluated together for eligibility. If the tests are passed, all entities are eligible; if not, none are eligible. The ERC is then calculated and filed for each separately.
This program is not an “income tax credit” and not related to your annual business tax returns or your profit/loss from the business. Although it is called a tax credit, it is most frequently received as a cash payment from the IRS. You may also use it to offset future payroll tax payments.
The initial analysis to determine your eligibility and approximate credit is completely free. If you file for an ERC with us, our fee is a percentage of the credit to be received.
The initial analysis to determine your eligibility and approximate credit is completely free. If you file for an ERC with us, our fee is a percentage of the credit to be received.
You may have heard of ERC before, but what is it exactly? ERC is short for Employee Retention Credit. It is a government tax credit available to employers who experienced financial hardship due to COVID-19.
How the ERC Works
The ERC is a refundable tax credit equal to 50% of the qualified wages paid by an eligible employer. To be eligible, an employer must have experienced a decrease in gross receipts of more than 50% when compared to the same quarter in the previous year in 2020 and 2021. The credit is available for wages paid from March 13, 2020 through December 31, 2020. For the 2021 program, the credit is increased to 70%, and the limit is $10,000 per quarter. This means the annual maximum for an employee is $26,000.
The ERC is available to any employer—including non-profits, regardless of size—that has experienced either a full or partial shutdown of operations due to a governmental order related to COVID-19, or has experienced a significant decline in gross receipts. A “significant decline in gross receipts” is defined as a decrease of more than 50% when comparing quarterly 2020 receipts to 2019 receipts.
Employers who are part of an affiliated group are only eligible if they meet the above criteria AND the group as a whole has suffered either a shutdown of operations OR a significant decline in gross receipts. For example, if two companies are part of the same parent company and only one company meets the eligibility criteria, the entire group is not eligible for the credit.
The employee retention tax credit (ERTC) is available to qualifying employers for the last three quarters of 2020 and the first three quarters of 2021. The employer’s tax return for the second quarter of 2020 was due July 31, 2020. This means that you can amend these returns and request a refund until July 31, 2023.
The payroll tax return for the third quarter of 2021 was due on October 31, 2021. That means that you have until October 31, 2024, to amend this return and request a refund.
There is still time to claim the ERTC tax credit in 2022, but you have to act fast if you want to beat the deadline. This tax credit can be complicated, so don’t wait to apply. Check out this guide and claim your refund as soon as possible. This guide explains the deadlines for claiming the ERTC tax credit retroactively. It also looks at the eligibility criteria and walks you through how to claim this credit.
There is still time to apply for the ERTC tax credit in 2022. The credit is no longer available for current claims, but you can claim it retroactively by amending your employment tax returns. The IRS lets you amend returns and claim refunds for up to three years after the filing deadline. That means the deadline for claiming the ERTC is three years after the original due date for the tax return.
The answer is no, but it does impact your income tax return. The benefits of receiving the credit far outweigh its effect on your taxes. There is still time to file if you didn’t apply for ERC on your 2020 and 2021 quarterly payroll tax returns.
Begin Your ERC Calculation Here
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Common Misconceptions about ERC Eligibility:
My company doesn't qualify for ERC because it remained open during the pandemic.
My company took advantage of the PPP and does not qualify.
My company is a non-profit organization and we do not qualify.
My company was an "essential business" and doesn’t qualify.
My company doesn’t qualify since year-over-year sales didn’t decline by 20%.
The ERC is a loan that I have to pay back.
HOW WILL THE PROCESS WORK?
Once you've applied for the ERC with us, the next steps are...
01.
Data Gathering
Use our secure portal to upload your 941 returns, PPP loan documents, and raw payroll data.
02.
Credit Calculation
We'll use our expertise to calculate the exact value of the credit you can receive from the IRS.
03.
Amending Returns
We'll prepare and help file the 941-X Amended payroll returns.
04.
Get Paid
The IRS will process your credit and mail you a check.
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Take advantage of the EMPLOYEE RETENTION CREDIT (ERC) for COVID-19 Relief
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