Employee retention credit (ERC) can be very beneficial to employers. ERC is a refundable federal tax credit that is designed to encourage employers to keep employees on payroll during the COVID-19 pandemic. It is additionally not considered a loan that needs repayment.
Employee Retention Credit Criteria
ERC is currently available for the 2020 and 2021 tax years. The 2020 ERC is 50% of the wages paid up to $10,000 per employee for the period between March 12, 2020 and December 31, 2020 with the amount capped at $5,000 per employee.
The 2021 ERC is 70% of the wages paid up to $10,000 per employee per quarter for three quarters of 2021 with the amount limited between $21,000 and $28,000 per employee.
Only a company that opened after February 16, 2020 with less than $1,000,000 in revenue can file for the fourth quarter of 2021 as a recovery startup business.
If your business suffered from the COVID-19 pandemic and you are considered a recovery startup business, you could receive between $26,000 and $33,000 of tax credit per employee.
The ERC is designed to help businesses recover from the economic downturn caused by the pandemic, make up lost revenue, and keep employees while continuing business operations.
Although the ERC program officially ended in 2021, you can still receive funds. Not all businesses qualify for ERC, but several of the ones that do don’t realize it.
How Your Business Can Qualify
Your business can qualify for ERC if you experienced a decrease in revenue due to COVID-19, such as a significant decline in gross receipts during 2020 or general decline in gross receipts during 2021.
Your business can also qualify if you are operating as an organization in the U.S. (regardless of size). This includes nonprofits, colleges, universities, real estate, industrial, construction, retail, and hospitality.
Another way your business can be considered is if you experienced a full or partial suspension from government authorities that limited business hours, or:
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- Suspended operations either partially or completely
- Shut down your supply chain or vendors
- Stopped the delivery of important goods or materials
- Reduced offered services
- Limited the workforce in a way that led to the suspension of operations
- Closed specific divisions or departments
- Stopped visitations to client job sites
- Reduced operations via social distancing
- Slowed work that could not be completed from home.
If government orders limited travel and group meetings, resulting in reduced operations and a “more than nominal impact” on business operations (defined as an impact of 10% or more per quarter), you may qualify for ERC in that quarter.
For any quarter you had a full or partial suspension that lasted for at least two weeks due to government interference, you may still have a chance to qualify for ERC in that quarter.
To be considered a recovery startup business in the third or fourth quarter of 2021, your business should have opened on or after February 16, 2020.
Additionally, your annual gross receipts should not exceed $1 million for the 2020 and 2021 tax years.
You must have more than one W2 employee as well (not including owner-operators or family members).
It is very important to remember that getting ERC requires qualifying wages.
This means the wages taken into account include cash payments and a part of employer provided health care costs.
Businesses that received Paycheck Protection Program (PPP) loans may still be eligible for ERC.
Credit amounts are calculated based on whether an employer had more or less than 100 or 500 average full-time employees in 2019.
If an employer had less than the target number, credit will be based on wages paid to all employees whether they worked or not during the calendar quarter.
If the employer had more than the target number, credit will be contingent on wages paid to employees who did not work during the calendar quarter.
In 2023, many businesses are claiming ERC by amending their tax filings as it takes between four to ten months on average for the IRS to process ERC claims and mail checks.
In Conclusion
Don’t worry if you already received PPP loans during the pandemic as there is still time to find out if your business is eligible for employee retention credit.
The Employee Retention Credit can provide significant financial assistance, support employee retention efforts, enhance cash flow, and contribute to the overall stability and recovery of your business during challenging times.
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It’s great to see discussions around the Employee Retention Credit! By incentivizing employers to keep their staff on the payroll, the Employee Retention Credit not only supports the business community but also helps maintain employment stability for countless individuals. Kudos to this impactful measure!
Understanding the benefits of the Employee Retention Credit for businesses is crucial, and this post does an excellent job of explaining its value. The Employee Retention Credit can be a valuable tool for businesses, and this post provides valuable insights and guidance on how to leverage it effectively. Business owners will find this information beneficial in maximizing their financial resources. Thank you for sharing this informative post!
The Employee Retention Credit is commendable as it encourages employers to retain their workforce, benefiting both businesses and employees. This credit promotes employment stability by incentivizing businesses to keep their staff on payroll. It is a highly impactful measure that supports the business community while ensuring job security for numerous individuals.
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That’s great news! If you’ve already received PPP loans during the pandemic, there’s still an opportunity to determine if your business qualifies for the employee retention credit. It’s worth exploring this option to potentially benefit your business. Take the time to find out more and see if you’re eligible. Best of luck!
Financial Benefit: The Employee Retention Credit (ERC) is a valuable financial incentive that can significantly benefit your business. By taking advantage of the credit, you can potentially reduce your tax liability and retain a portion of the wages paid to eligible employees, providing a financial boost to your company.
Retaining Skilled Workforce: The ERC encourages businesses to retain their employees during challenging times. By utilizing the credit, you can offset some of the costs associated with retaining your skilled workforce, allowing you to maintain business continuity and avoid the costs and disruptions associated with employee turnover.
Flexibility in Eligibility Criteria: The ERC has undergone changes and expansions in response to the COVID-19 pandemic, making it more accessible to a wider range of businesses. Even if your business did not qualify for the credit in the past, it’s worth revisiting the eligibility criteria to see if you now meet the requirements and can benefit from the credit.
Cash Flow Management: The ERC can positively impact your business’s cash flow. Instead of waiting for a tax refund or credit at the end of the year, you can take advantage of the ERC to reduce your employment tax deposits or request an advance payment, providing immediate financial relief and improving your cash flow situation.
Competitive Advantage: Utilizing the ERC can give your business a competitive edge. The credit allows you to allocate resources towards retaining and compensating employees, creating a positive work environment and potentially attracting and retaining top talent. Demonstrating a commitment to your workforce can enhance your employer brand and differentiate your business from competitors.
Professional Guidance: Navigating the complexities of tax credits and incentives can be challenging. Consider seeking guidance from a qualified tax professional or consulting firm to ensure you fully understand the ERC’s requirements, maximize your eligibility, and take full advantage of the credit’s benefits. Their expertise can help you optimize your strategy and ensure compliance with the relevant regulations.
Discover the power of the Employee Retention Credit for your business! This valuable resource can be a game-changer, helping you retain talented employees while reducing your tax burden. By taking advantage of this credit, you can enhance your workforce stability and boost your bottom line. Don’t miss out on the benefits this credit can offer to your business in terms of financial savings and employee retention.
Really Appreciable to see discussions around the Employee Retention Credit!
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Thank you for the detailed explanation on how the Employee Retention Credit can benefit businesses, including important criteria and eligibility information for both 2020 and 2021.