Over the last two years, many businesses were financially affected by COVID-19. Although the Employee Retention Credit is not a government program it can offer substantial relief. The Coronavirus Aid, Relief and Economic Security Act (Cares Act ) created this program to help eligible companies keep their employees employed and to assist them in the financial crisis that has resulted from the pandemic. Due to the changes to programs and incentives, many businesses have difficulty understanding ERC qualifications.
Many companies have overlooked ERC. The CARES Act initially prohibited employers from obtaining both a Paycheck Protection Program Loan (PPP) and an ERC. This has been changed. ERC was also ended retroactively by the Infrastructure Investment and Jobs Act on October 1, 2021. The fourth quarter 2021 ERC is not open to employers. This program was terminated on September 30, 2021. Businesses can retroactively claim ERC for large cash amounts or relief on their 2021 and 2020 payroll tax returns. You should learn about the ERC, its eligibility, and how you can claim it.
Contact one of our ERTC agents to learn more about ERC eligibility.
Who is eligible to apply for ERC?
ERC is for businesses and trades whose activities were temporarily or completely stopped by government orders, or who experienced a decrease in gross receipts because of the pandemic. For calendar years 2020-2021, the eligibility and calculation rules for ERC differ.
2020 ERC Qualifications:
If an employer was involved in any trade or business during 2020, they can apply for the ERC.
A governmental order restricting commerce or travel or group meetings in response to COVID-19.
The quarter ended in a more modest decline than the same period last year.
The maximum qualified wage that an employee can receive for any calendar quarter is $10,000 Employers can only claim the maximum amount of credit for ERC when they receive at least $10,000 worth qualified wages. Employers can claim up to $5,000 in ERC credit per employee.
Employers can pay qualified wages to workers who are unable to provide services because operations have been suspended or partially suspended.
Employers with 100 full-time workers or less are eligible to pay qualified wages.
Large and small employers both large or small can consider "wages" taxable wages which include certain contributions to health insurance plans.
ERC Eligibility 2020
If an employer was involved in any trade or business during 2021, they can claim the ERC beginning January 1, 2021.
A governmental order restricting commerce or travel or group meetings in response to COVID-19. Or a suspension or complete stoppage of trade or business during a quarter.
Gross receipts will decline if they are lower than 80% for any quarter in 2021, 2020, or 2019.
Employers that are eligible may be entitled to credit of up to 70% for qualified wages paid in 2021 to their employees. The credit can be claimed for either Dec. 31, 2020 or Oct. 1, 2021. For 2021, the credit is 70% for each $10,000 in qualified wages. up to $7,000 per employee per quarter. Eligible employers may receive a credit of up to $7,000 for every employee in the quarter and $21,000 for the entire year 2021.
The ERC: Understanding who qualifies
To determine eligibility for ERC, employers can use the same quarters of 2019 and 2020 based on decreased gross receipts. To determine their ERC eligibility in Q2 2020, employers would compare their Q2 2019 gross receipts to Q2 2021.
Employers can choose to have gross receipts calculated for a different quarter. This allows employers to decide if the 2021 fall in gross receipts threshold has been satisfied for that particular quarter. It is accomplished by comparing gross receipts for the previous quarter to the same quarter of 2019. A Q1 2021 employer that has experienced a significant decrease in gross receipts would qualify. Based on Q1 comparison.
ERC applicants who are qualified on the basis of the requirement for governmental orders must prove that they had to suspend their business activities during the applicable calendar quarter due to a governmental order or administrative order restricting commerce or travel or group meetings. To be eligible for the governmental order test, employers do not need to show a decline in gross receipts.
There are many things to consider when determining whether a company is eligible for the government order test. It often comes down to whether the company was temporarily suspended. Partial suspension of operations can be defined as:
An order from the government can be used to suspend certain business operations or prevent similar activities being carried out remotely.
While business operations can continue as usual, they might be affected by an order from the government.
When is the best time to claim ERC tax credit
You still have time to apply for ERC tax credits. Companies must meet the ERC eligibility requirements. Companies can apply for the ERC credit tax credit up to 3 years after the filing of their tax returns or 2 years after the payment date, depending on the time it was made. This can be done by filing Form 941X (Adjusted Quarterly Federal Tax Return) or a Claim for Refund. To report mistakes and errors, you can use Form 941X. You can make claims for credit that has not been claimed from 2020 to April 15, 2024 or 2021 until April 15, 2025.
How can you avoid missing ERC Opportunities
Many employers who otherwise qualified for the ERC credit didn't claim it. However, amended employment tax returns can be filed to benefit from the ERC. Three years from the date of filing Form 941 is typically the deadline to amend quarterly returns. Instructions for Form 941X indicate that there is a limitation period of 15 years to modify the form. To be eligible for the ERC, quarter 2 of 2021 for which the original From 941 has been filed in time, the amended return must then be submitted no later than April 15, 2025.
Employers need to be able identify the eligibility criteria for ERC and the requirements and nuances of claims. It will reduce the chance of being sued. It is essential to preserve all documentation in order to comply with the ERC requirements. To help employers navigate the ERC requirements, they can outsource all aspects of the process. To maximize ERC benefits, employers can have the whole process outsourced. Employers can rely on top-of-the-line technology and tax credit specialists to help them determine eligibility, track their payroll, and claim any credit.
The ERC Benefits provide full assistance in the determination of eligibility, calculations and logistics.
Questions about eligibility for the ERC
How do ERC-qualified wages work?
Qualified wages are wages and compensation an employer can pay to employees. These wages can be paid to all employees, or any combination of them after March 12, 2020. They also cover eligible employer qualified medical plan expenses. Depending on the number of employees, there will be a different definition for "qualified wages".
Qualified wages refer to wages that employees receive for services they did not perform because of an order from the government. It could also be the suspension, partial or total suspension of an employer's business activities or a decrease in gross receipts. Qualified wages refer to wages paid during times of business interruptions or substantial reductions by government orders.
What are the qualified wages that include tipped wages?
FICA taxes are applied to tips. They are excluded from qualified wages. Tips cannot exceed $20 per employee per month. Tips that exceed $20 per month are considered qualified wages.
How does the ERC differ between large and small employers?
ERC credits are subject to different qualifications depending on how large and what type of business you own. Your payroll number will decide whether or not you're a big employer.
For the 2020 ERC, small employers are businesses with 100 or fewer full-time workers.
For the 2021 ERC, small employers are businesses with 500 or fewer employees.
Employers with more than 100 employees are considered large.
Employers that have more than 500 workers are considered large employers.
When assessing your company's size, it is crucial to identify who can be considered full-time. IRC 4980H defines a full-time worker as someone who works over 30 hours per week, or 130 hours per month.
Eligible for the ERC: What business are eligible?
Many businesses are eligible to meet the ERC eligibility criteria. These industries can meet ERC eligibility criteria:
Non-Profit, Daycares, Construction, Restaurant, Hospitality, Education, Industrial, Real estate, Technology.
We are available to help businesses of all sectors with the ERC.
Can churches or religious organisations claim the ERC?
ERC eligibility is available to religious or church organisations. ERC may be granted for a religious or church group subject to restrictions on capacity or that has experienced a significant drop in gross revenues.
Is there any other tax credit that is available in addition to ERC?
In most cases, double-dipping is forbidden. You cannot get credit for wages that are qualified for the ERC, certain tax credits like the Work Opportunity Tax Credit (WOTC), and family medical leave. Companies can get credit for wages not forgiven, or expected to forgive under the ERC. We can maximize your return. We can maximize your return while keeping you on track so you can improve your bottom line.
How long does it take to obtain the ERC?
Once you meet the ERC requirements, and have filed Form 941X with IRS, your eligibility for a refund will be granted. The IRS does not provide any timeline. A business should expect to receive their refund in nine months from the time they claimed the ERC.
Find out your eligibility for the ERC
Tax credit services are available to help you obtain tax credits that can save you money. To save time and allow your staff to focus on your core business, you can outsource all aspects of the ERC process with us.