Businesses Impacted by COVID Should Explore the Employee Retention Credit
During the COVID-19 Pandemic, the U.S. Government passed the CARES ACT to help individuals, families, and businesses struggling to stay afloat due to employer layoffs and business closures. Individuals and families received stimulus checks.
Companies received loans from the Small Business Association. The Employee Retention Credit was offered to encourage businesses to keep employees on the payroll. Your business might be eligible to receive up to $33,000 per employee!
Businesses must qualify to participate in the ERC.
The retention credit works by providing a portion of qualifying wages to employers who were forced to stretch their budgets to retain most or all of their employees. Eligible employers are non-government sector businesses and tax-exempt organizations that experienced:
- A full or partial shutdown of operations resulting from a government order limiting commerce due to COVID-19 during 2020 or 2021.
- Gross receipts drop of more than 50 percent during a 2020 calendar quarter when compared to the same quarter in the prior year. For the 2021 calendar year, your business must have experienced over a 20 percent drop in gross receipts in comparison to the same period of 2019.
- A “recovery startup” business launched after Feb. 15, 2020 that did not have average annual gross receipts over $1 million is subject to a quarterly ERTC cap of $50,000.
For the ERC, there is no size limit for the ERC on eligibility for the ERC.
- For employers with 100 full-time employees or less, all employee wages qualify for the credit. It does not matter whether the employer is open for business or shutdown.
- For employers with over 100 full-time employees, the business’ qualified wages are those wages paid to employees when the business is not providing services due to COVID-19 related circumstances.
Speak to a tax expert to determine if your business is eligible for ERC’s valuable benefits.
Can a startup business qualify for the ERC?
Your business might qualify under the original rules. If your business started in 2020, you must use 2020 as the comparison period when applying for the ERC in 2021. The March 2021 American Rescue Plan expanded the ERC. Hence, a business launched after February 15, 2020 that cannot qualify under the standard rules may still apply for the ERTC under the “Recovery Startup Business” qualifying criteria.
Recovery startup businesses cannot exceed average annual gross receipts of $1 million and the total ERTC value is capped at $50,000 per quarter. Additionally, the Recovery Startup Business qualifier is only eligible for Q3 and Q4 of 2021
Learn more about Startup Businesses and the Employee Retention Credit from our highly skilled tax professionals.
The Difference between the ERC and the PPP
The ERC is a tax credit against payroll taxes, reducing the required payroll deposit on the business’ Federal quarterly return. In any quarter that the ERC amount exceeds the taxes due, the excess is refundable to the employer as an overpayment.
The PPP is a Paycheck Protection forgivable loan available to qualified employers through government-approved lenders to help cover payroll costs, business operational expenses, supplier costs, etc.
Employers may still claim the ERC if they have a PPP if the wages used to calculate the ERC were not forgiven under the PPP.
Find out if you can use your business wages to calculate the ERC by speaking with a certified tax specialist.
How long is the ERC Program available?
Eligible employers can still take the employee retention credit against employment taxes and qualified wages paid to their employees through Dec. 31, 2021.
Although the program is set to cease at calendar year-end 2021, you can claim the credit on your amended payroll tax returns. However, the statute of limitations must still be applied, which is three years from the date of filing.
Businesses can also claim the ERC retroactively against past quarters. Businesses have up to three years from the program’s end date to conduct a lookback to determine if wages they paid after March 12, 2020, are eligible through the program’s end.
Don’t miss out on valuable tax credits! Reach out to one of our qualified tax specialists to ensure you receive the maximum to which you are entitled.
How much will you receive under the ERC?
For 2021, an employer can receive 70 percent of the first $10,000 of qualified wages paid for each employee in each qualifying quarter, raised from 50 percent in 2020. The ERC applies to wages paid or earned from March 13, 2020, through calendar year-end Dec. 31, 2021. Employer-paid health benefits can also be considered part of employees’ qualified wages.
The ERC has a maximum credit of $5,000 per employee in 2020 and $28,000 per employee in 2021.
Most businesses are eligible for the Employee Retention Credit. Still, it’s a temporary program, so it is essential to seek expert tax counsel to determine if other provisions in the CARES Act could hinder your eligibility. Additionally, the methods of calculating qualifying employee wages and caps on ERC receipts can be complex, challenging even the best financial-minded business owners.