Over the past nearly two years, businesses across the country, and the world, have been severely impacted by COVID-19. Throughout the course of the pandemic there have been numerous local, state, and national level legislative changes and implementations to aid in the vast healthcare and economic impacts from COVID-19. Many of these implementations are tax credits and loan forgiveness opportunities to help businesses stay afloat as the world begins moving towards a new normalcy. Many of these credits have not been recognized or utilized, and are still available to take advantage of, including the Employee Retention Tax Credit.
What is the Employee Retention Credit?
The Employee Retention Credit (ERC) is a tax credit available to businesses throughout the country who have retained their employees throughout the pandemic. Created as part of the CARES Act in March 2020, it was expanded by both the Consolidated Appropriations Act in December 2020 and the American Rescue Plan Act in March 2021. As a result of the expansions, the tax credit is available to be claimed through December 31, 2021. This credit can be worth thousands of dollars to businesses that qualify.
Here’s an example of the credit a business could claim:
A business who has 10 employees and qualified for the ERC in 2020 could get a credit of up to $50,000 ($5,000 per employee). The same business that qualifies for the credit in 2021 could receive up to $70,000 per quarter, potentially totaling $280,000 for the year.
Does Your Business Qualify?
Although there are limitations, many businesses do qualify for the credit and very few are utilizing it. Here is a breakdown of qualifications for both 2020 and 2021:
- You have employees and your business was partially or fully shut down due to government or authoritative orders related to COVID-19
- Gross receipts for any quarter in 2020 were less than 50% compared to the same quarter in 2019
- Your business was partially or fully shut down due to government or authoritative orders related to COVID-19
- Your business’ gross receipts in any quarter are less than 80% of that respective quarter in 2019 (your revenue declined by more than 20%)
- And, if your business revenue is less than $1 million on average for the last three years, or if you started your business after February 15, 2020, you have an opportunity to qualify for the third and fourth quarters of 2021.
What Are the Limitations?
The most important thing to note is you can’t use the same wages to qualify for PPP1 or PPP2 loan forgiveness and the ERC. This is crucial to understand as it may change the expenses you choose to use for PPP loan forgiveness. You also cannot use the same wages to qualify for other pandemic-related credits.
How Is the ERC Calculated?
The ERC is calculated quarterly based on your gross wages taken from your quarterly 941 forms. If your business qualifies, you can potentially reduce payroll tax payments and keep some of those employee and employer taxes as an immediate tax credit to assist cash flow. If you have already filed your 941 forms, you can request a refund by filing a 941X form.
How We Can Help
First and foremost, if you have questions, or think your business qualifies for the credit, our team can do a comprehensive review to see if you qualify, and assist in the process to maximize your tax credit opportunity. If you received PPP1, PPP2, have FFCRA (COVID pay), WOTC, R&D, or FAR OH you may have the ability to plan and maximize your ERC credit and other loan forgiveness opportunities.
Our experienced tax advisors can determine what your business is eligible to receive and create a strategic tax plan that best helps your business’s current and future success during a challenging time.