If you have W2 wage employees, you may be eligible for a substantial tax credit, up to 70% on payroll, from the Employee Retention Credit.
Back in May 2021, “more than 30,000 small businesses have already claimed more than $1 billion in ERCs” announced the White House.
You may be the next one!
The Employee Retention Credit (ERC), also called Employee Retention Tax Credit (ERTC), is a financial support scheme for businesses that experienced a loss of revenue due to the government’s restrictions during the COVID pandemic.
Its purpose is to help you keep employees on the payroll, even if they were not working due to the lockdown.
You may have already heard about this scheme but reckoned that it doesn’t apply to you, in particular, if you are already received Paycheck Protection Program (PPP) loans.
Rules have changed and you need to know how this works and don’t miss out on the opportunity of saving money.
In this article, we will clarify all the aspects of this refundable tax credit, bust common misconceptions and give the exact eligibility criteria to assess if you should apply or not.
With us, you will find the employee retention scheme simple!
Important update from November 2021: on November 6, Congress decided to exclude the last quarter of 2021 (after September 30) from the ERC scheme. President Biden signed the bill into law on November 15.
You won’t be able to claim any credit for wages paid in Q4 2021.
What is the ERC program?
The Employee Retention Credit is a refundable tax credit that you can claim if your business falls into certain criteria.
It was established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 to help businesses keep their employees by reducing wage charges.
Initially, the Act didn’t allow businesses that received PPP loans to claim the ERC, but things have changed in December 2020 with the Consolidated Appropriations Act. It is now possible to have both and the new Act applies retroactively, meaning for 2020 (starting after March 12).
You have to be aware though that the rules are different for 2020 and 2021.
For 2020, you may claim 50% of a maximum of $10,000 per employee, for wages paid from March 12 and on, or before December 31. This means up to $5000 (per employee) for the year 2020.
For 2021, you may claim 70% of a maximum of $10,000 per employee for each quarter and not annually, from January 1 through September 30, 2021. This means up to $21,000 (per employee) for the three quarters of 2021.
There are many details on how this actually works, but to keep it simple, we summed up below the key points you should have in mind.
Highlights
- Check paid to your business
- Does not depend on the amount of tax paid
- For-Profit and non-profit organizations
- Claimed via Payroll Tax Amendment
- Qualify even with strong revenue
- Payroll wage attribution required with PPP (if any)
8 common misconceptions about the ERC
There is a lot of confusion around the ERC and we want to help you see the truth about it.
Here is a list of common misconceptions about Employee Retention Credit.
1) ERC is not a loan
This is a tax credit, not a loan.
So there are no financial risks to apply for it.
2) You can have also PPP and PPP2
These are totally different types of help. The PPP is a loan, the ERC is a refundable tax credit.
The eligibility criteria are different and you can benefit from both.
However, you can’t use the same funds to claim both and you need to be strategic to get the most out of them. You need to clarify which wages were covered by the PPP loan and which ones are being applied to the ERC.
The best solution is to ask for help from a professional.
We can help you define the best strategy and maximize your benefits.
Feel free to request your ERC guide!
3) You don’t need to experience a decline in revenue
The rules are complex but you may still be eligible even if you didn’t experience any decline in revenue.
The section below will help you clarify if you are still eligible.
4) The ERC is not for essential businesses
This is not the case.
You may still have been impacted by a reduction of the number of clients due to travel restrictions for example.
Check your eligibility carefully!
5) This doesn’t apply to my industry
Many businesses can apply, from a broad range of industries.
You will find a few examples below.
6) My business wasn’t shut down, I can’t apply
Wrong. You may be eligible even if you had only a partial reduction in activity, shutdown of supply chains, some locations and not others, a reduction in hours or services.
The key point here is to assess if your business has been significantly impacted by the restrictions imposed by the government.
7) We are a charity, we can’t benefit from this scheme
Also wrong.
You may benefit from significant help as well, even if you are a public college or hospital.
8) My company has grown, I can’t apply
You may still be eligible.
It depends on the number and timeframe. Check the eligibility criteria below.
Is your business eligible for the ERC?
Now that you know more about the ERC scheme, you want to check if your business is eligible.
This may require a personal assessment and we can help you with that, but here are the main criteria:
1) Your business employed people using W-2
2) Headcount requirements: under 100 for 2020, 500 for 2021
3) Your business has been impacted, directly or indirectly, due to governmental orders related to COVID affecting: trade, commerce, travel, or group meetings.
Check with us for assessing in detail the impact you have experienced.
4) Your business has experienced a loss >= 50% in any quarter of 2020 compared to the same quarter of 2019, and/or business loss >=20% in any quarter (Q1 to Q3 included) of 2021 compared to the same quarter of 2019
Be aware that you don’t need to answer both conditions 3 and 4. It can be either one or the other.
Also, even if you haven’t experienced a decline in revenue, you may still qualify.
Don’t let these misconception stop you from applying!
Let’s take a quick example here.
You have a restaurant that makes more than 10% in revenue from indoor dining and you experienced a loss of 50 % due to social distancing. You have however seen a massive increase in revenue from takeouts. You may still be eligible.
As you see, it may be tricky to find out exactly if you are eligible or not.
That’s why we created the Emergency Employer Relief Program to help you assess your eligibility and apply smoothly.
Common industries that can apply to ERC
Many businesses have been impacted by the government rules during the pandemic, but you may wonder if the ERC applies to your particular industry.
While it would be too long and tedious to list all the industries that can benefit from this credit, here is a list of the most common ones:
- Restaurants
- Manufacturers
- Construction
- Non-Profit
- Churches & Religious Institutions
- Daycares and Schools
- Medical
- Law and professional services
- Fitness Studious, Spas and Gyms
There are many more industries eligible, so feel free to reach us to know if you can apply.
How to apply? The Employee Retention Credit made simple
Hopefully, this article clarified the main points and gave you a better understanding of the ERC.
But we know how confusing it can be and you may still feel overwhelmed by all the questions remaining for your particular case. Are you really eligible? How to apply?
We created the Emergency Employer Relief Program to relieve you from that stress and make the whole process of eligibility assessment and application easy and quick.
You will save time and energy researching how this credit works for you and how you apply successfully.
You won’t have any headaches when doing the payroll calculations and trying to optimize your benefits between ERC and your PPP loans for example.
We offer the following world-class services:
- Done-for-you ERC application
- Payroll calculations
- Tax Return preparation
We want to make sure that you will get the most value out of your application.
Information is power and we are here to give you clear information that saves you time and the hassle of finding your way in this complicated legal documentation.
If you choose to work with us, we will:
- keep your business compliant with program rules and regulations
- provide a questionnaire to validate and document eligibility
- compute ERC credit amounts
- create an attribution schedule for payroll wages between the PPP and ERC programs
- provide audit-ready documentation
- prepare and file all necessary paperwork with the IRS
The only thing you still have to do yourself is to relax and contact us!
