The Employee Retention Credit (ERC), is a U.S. government program. Designed to help businesses keep their workers employed, during the pandemic and other crises. Whether you’re a small business owner or managing a large corporation. Understanding the ERC can result in significant financial relief.
Contents
What Is the Employee Retention Credit (ERC)?
The ERC serves as a refundable tax credit, against specific employment taxes. Employers who meet the eligibility criteria can claim this credit, to mitigate the costs associated with retaining employees, during uncertain economic periods.
Who Is Eligible?
- Business Size: Both small and large businesses can benefit from the ERC. However, the credit amount might vary depending on the size of your business.
- Revenue Decline: You must experience a decrease in revenue, compared to the same quarter in the previous year.
- Government Orders: Full or partial suspension of operations, due to governmental orders related to COVID-19.
- W-2 Employees: The ERC is applicable for businesses, that employed W-2 employees in the tax years 2020 or 2021.
*Note that certain governmental entities and self-employed individuals can’t claim the credit for their own wages.
*Businesses can apply for the ERC, for wages paid after March 12, 2020. Note, there is a time limit for amending tax filings to claim the ERC.
How to Apply for the ERC
You can apply by either amending your employment tax returns. Or, by claiming the credit on your quarterly employment tax returns (Form 941). It’s advisable to consult a tax professional to navigate this complex process.
Deadline for Filing
- 2020 Tax Filing: Amend by April 2024
- 2021 Tax Filing: Amend by April 2025
Calculation Factors
- W-2 Employees: You must have had W-2 employees during the eligibility years.
- Revenue Impact: You need to identify if your revenue was impacted by shutdowns.
- Number of W-2 Employees: The number of full-time employees you have affects your eligibility and the amount you can claim.
How to Calculate the ERC
- Confirm Your Eligibility: Understand if you meet the criteria, based on revenue decline or government orders.
- Pinpoint Your Eligible Time Frame: Identify the quarters where your revenue was impacted.
- Determine Your Qualified Wages: Calculate the wages that qualify for the ERC.
- Calculate Your Tax Credit Amount: Use your qualified wages to determine your potential tax credit.
Tools and Resources
Below is a tool to give you a brief idea, of whether you qualify and how much you are estimated to potentially receive. For additional insight into the potential benefits you can be awarded. Be sure to get in contact us here, or by clicking the button below.
ERC Refund Calculator
Employed W-2 employees in 2020 or 2021? Was revenue impacted by shutdowns? Did revenue decrease year-over-year for any quarter? Business Start Date Number of W-2 Employees Max eligible wages paid to any employee
Disclaimer: This calculator is a tool to assist with estimating your potential Employee Retention Credit (ERC). It is not a substitute for professional financial or tax advice. The results provided are for informational purposes only and do not constitute financial or tax advice. Consult with a qualified financial advisor or tax professional, to get personalized advice about your specific situation.
Overlapping Tax Credits
Using the same wages to claim the ERC and other credits, such as the R&D tax credit. Is not permitted. Additionally, wages utilized for PPP loan forgiveness, cannot be used to claim the ERC.
Documentation and Auditing
Maintain comprehensive records, for at least four years to substantiate your claim. While the IRS does not impose penalties for honest mistakes, you should still aim to be as accurate as possible. (1, 2, 3)
Conclusion
The Employee Retention Credit is a valuable resource, for businesses impacted by the pandemic or other crises. Understanding the intricacies of the ERC, could save your business a substantial amount of money. For more information or assistance with your claim. Be sure to contact us or click below.
More Questions?
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References:
- Internal Revenue Service (IRS), Frequently Asked Questions About the Employee Retention Credit, retrieved from: https://www.irs.gov/coronavirus/frequently-asked-questions-about-the-employee-retention-credit
- Martin Karamon, Cherry Bekaert, 2023 Most Frequently Asked Questions about the Employee Retention Credit (ERC), retrieved from: https://cbh.com/guide/articles/employee-retention-credit-erc-faqs
- ERC Today, Helpful Employee Retention Credit FAQs, retrieved from: https://erctoday.com/helpful-erc-faqs
- Disaster Loan Advisors, Employee Retention Credits – A Detailed FAQ Guide, retrieved from: https://www.disasterloanadvisors.com/employee-retention-credits-a-detailed-faq-guide
- Lendio, Employee Retention Tax Credit Calculator (ERTC), retrieved from: https://www.lendio.com/employee-retention-credit-calculator
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Last reviewed September 2023