Only 35% of small businesses have reached or surpassed their pre-pandemic sales levels. The government enacted several economic relief programs to help businesses recover from the COVID pandemic. If you haven’t taken advantage of the ERC, you still have time.
The ERC can seem like a small business grant. In addition to a tax credit, you could receive funds back as payment. Learn more about the ERC and how it could benefit your business.
What Is the ERC?
Congress created the Employee Retention Credit (ERC) as part of the CARES Act in 2020. The ERC provides economic relief to businesses that suffered because of the COVID pandemic.
The ERC gives eligible employers a credit against certain business taxes.
Why Does the ERC Seem Like a Small Business Grant?
The ERC is a tax credit. It may seem like a small business grant because it’s refundable. If the amount of the credit you qualify for is larger than the employment taxes you owe, the IRS will refund the excess amount to you.
The ERC isn’t taxable income. You omit it from your gross income. However, it is subject to expense disallowance rules.
An ERC expert can help you understand the effects of the ERC on your business tax situation.
Eligibility for the ERC
Most businesses and non-profit organizations could be eligible for the ERC.
Businesses can use either a shutdown order or a reduction in sales to qualify for the ERC. For 2020 and 2021, a business is eligible for the ERC if it was subject to a governmental full or partial shutdown order.
The criteria for a reduction in sales are different for 2020 and 2021. In 2020, a business must show that sales for a quarter are down by at least 50% compared to the same quarter of 2019. For 2021, businesses must show that sales are down at least 20% compared to the same quarter in 2019.
Recovery Startup Qualification
Special criteria apply to businesses that started after February 15, 2020, and have less than $1 million in gross receipts. These businesses don’t need to show a reduction in sales or a shutdown order. Recovery startups that paid at least one W2 employee during the third and fourth quarters of 2021 could be eligible.
Determining the Amount of Your ERC
If your business is eligible, you can claim the ERC for qualified wages paid in 2020 and for the first three quarters of 2021. To determine the amount you can claim for the ERC, you need to know the amount of qualified wages you paid each employee.
If you received a PPP, you can’t use the same wages to claim the ERC.
Number of Employees
An employer who had fewer than 100 full-time employees in 2019 can claim the ERC for 2020 for all employees paid during the affected quarter(s). Employers with more than 100 employees can only claim the ERC for wages paid to employees who weren’t providing services during the affected quarter(s).
For 2021, the cutoff is 500 employees instead of 100.
Maximum Credits
For 2020, you can claim 50% of up to $10,000 in wages per employee for the year.
The limit increases to 70% for 2021. In addition, the $10,000 maximum is per quarter. You can claim up to $21,000 per employee.
Time Limit to Claim the ERC
Even if you’ve already filed your business taxes for 2020 and 2021, you can still claim the ERC. You’ll need to file Form 941-X to amend your tax return. You can file Form 941-X for up to three years after the original taxes were due or two years after you paid the tax.
This means that you can typically claim the 2020 ERC until April 15, 2024, and the 2021 ERC until April 15, 2025.
Simplify the ERC Claim Process
The ERC is a tax credit that may seem like a small business grant. If you qualify for a larger tax credit than the taxes you paid, the government will send you the remaining funds.
Determining how much you can claim under the ERC can be complicated. ERC Opportunities can help simplify the process. Our expert team has helped businesses in a variety of industries claim millions in credits.
Contact us today to start the qualification process.