What is the Employee Retention Credit (ERC)?

The Employee Retention Credit (ERC) is a tax credit available for small business owners, LLC’s, S-Corps or 1099 employees. Similar to the $1,200 stimulus check taxpayers received, this credit is designed to help small businesses during these trying times.

Find Out if Your Business Qualifies

It’s a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees. This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000.

Eligible Employers for the purposes of the Employee Retention Credit are employers that carry on a trade or business during calendar year 2020, including tax-exempt organizations, that either:

           Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-1

        Experience a significant decline in gross receipts during the calendar quarter. (For more information from the SBA directly, see Determining Which Employers are Eligible to Claim the Employee Retention Credit.)

How Much Can I Claim with the ERC?

Because of the new rules in the latest stimulus, businesses can retroactively claim the ERC credit for 2020, as well as 2021. The amount you can claim depends on which year you are claiming funds for.

  • For 2020: The ERC will pay out up to $5,000 per employee, depending on their wages earned for the quarters the business was impacted.
  • For 2021: The ERC will pay out up to $7,000 per employee, and can be claimed for both Q1 & Q2, meaning it can be claimed twice, making the value potentially $14,000 per employee.

An important thing to note is that you are not allowed to claim forgiven PPP wages towards your ERC credit, so make sure you work with an accountant that can review your records and claim as much funding as possible, without “double dipping” in free funds.

Small Business Example

Let’s take a look at an example of a 3 person business, and how much they could claim for the ERC for 2020. Remember, the max you can claim per each employee is $5,000, otherwise, it will be half of what they made in that quarter:

  • Employee 1 was paid $16,000 through Q2
  • Employee 2 was paid $10,000
  • Employee 3 was paid $7,000

Employees 1 & 2 both qualify for the max amount of $5,000, while Employee 3 qualifies for $3,500, meaning the company in total could claim $13,500 in funding from the IRS.

How Do I Know if I Qualify?

The IRS will be looking for your business to meet one of two key factors to qualify for the ERC:

A decrease in revenue over a specified quarter. To retroactively claim the credit for 2020, you must show a decrease of 50% or more over any given quarter. For 2021, you only need to show a 20% decrease in revenue, and if this revenue decrease happens in both Q1 & Q2, you can claim the ERC twice.

A “Full or Partial” Closure of your business.  This can include local governmental restrictions or mandates restricting the number of employees or customers in your workplace, disrupted operations (keeping 6 feet from clients), being forced to work from home, or completely closing your business operations for an extended time period.

Your business only needs to fit under one of the above restrictions in order to qualify for the ERC.

To find out if your business qualifies for the ERC, fill out this form today

To learn more about the ERC and find out if it’s something your business qualifies for, please call us at  +1-877-662-3489 or email [email protected] and one of our 5-star customer service representatives will be happy to assist you.

 

 

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