The Employee Retention Credit (ERC) was enacted as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27th, 2020. It was established in response to the COVID-19 pandemic, which has caused widespread disruptions to businesses and industries across the country.
The goal of the ERC is to help businesses retain and pay their employees, when operations have been partially or fully suspended. This can provide much-needed financial stability for businesses during these difficult times.
To be eligible for the ERC, businesses must have been affected by COVID-19, whether in the form of decreased profits or business operations being fully or partially suspended due to government orders. In addition, businesses must have paid qualifying wages to employees during the pandemic. The following are a few common questions regarding ERC eligibility.
An eligible employer is any business that was operational on or after February 15, 2020, and paid qualifying wages to its employees. Eligible employers must also have experienced full or partial suspension of business operations as a result of government orders, or experienced a substantial decrease in gross receipts during a calendar quarter compared to the year prior to the pandemic (2019).
Eligible employers include businesses that are corporations, partnerships, sole proprietorships, and non-profit organizations.
To be eligible for the ERC, businesses must have been affected by COVID-19, whether in the form of decreased profits or business operations being fully or partially suspended due to government orders. In addition, businesses must have paid qualifying wages to employees during the pandemic. The following are a few common questions regarding ERC eligibility:
A business was “fully suspended” during the pandemic if it was forced to close or suspend operations temporarily due to government orders. For example, business operations may have been restricted when the government limited travel, commerce, or group meetings during the pandemic (such as during the “stay at home” order). Businesses like hotels experienced full suspension during significant stretches of time.
Partial suspension occurred when a business was forced to limit services or operations due to government orders. For example, many restaurants were forced to suspend indoor dining services, but could still sell food and beverages via delivery or carry-out.
Businesses that experienced a disruption in staffing, changed processes to include social distancing and extra cleaning measures or had issues with their supply chain may also be eligible.
Qualified wages refers to any compensation paid to employees during the eligible period. This eligible period includes any time in which the government forced a partial or full suspension of business, as well as during periods in which gross receipts (total revenue) were significantly lower than those in comparable quarters in 2019. More specifically, this includes:
The ERC is calculated as a percentage of qualifying wages paid to employees during the pandemic. The credit is equal to 50%of qualifying wages paid after March 12, 2020, and before January 1, 2021. It’s equal to 70% of qualifying wages paid in 2021. Keep in mind that the maximum amount of qualified wages credit that can be claimed in a quarter is $10,000 per employee.
The ERC can be used to cover wages, including salary and hourly, and qualified health plan expenses for both part-time and full-time employees.
It’s important to note that the ERC is not a traditional income tax credit. Instead, it’s a cash payment from the IRS that businesses can use to offset future tax payments.
To use this credit, businesses will need to file a claim with the IRS. Each quarter, businesses must report their payroll tax liability and the amount of ERC that they want to use to offset this liability.
Yes, businesses can receive both the ERC and the Payroll Protection Program (PPP) if they are eligible for both. However, businesses cannot use the same wages to claim both credits. For example, if you paid $10,000 in qualified wages during the pandemic, you could use $5,000 to claim the ERC and the other $5,000 to claim the PPP.
First of all, the ERC ended on November 2021. However, if you didn’t claim the credit when you initially filed your business income tax return (and you qualified for the ERC), you can still claim it by amending your return.
Unfortunately, claiming the ERC isn’t as easy as filling out and submitting a basic form. The first step in claiming the ERC is to determine your eligibility. Once you’ve done this, you can access the ERC for qualifying wages paid in 2020 or 2021 by filing Form 943-X or Form 944-X Amended Quarterly Payroll Tax Return, which the IRS will accept up to three years after the initial filing (up to the end of 2024).
This process will typically involve submitting several forms and providing documentation to support your claim. You should work with an accountant or tax professional to ensure that you are following all of the necessary steps and submitting all the required documentation.
If you are a business owner that needs assistance claiming your ERC, our team at J.R. Martin CPA can help. We offer a free evaluation to determine your level of ERC tax eligibility. We offer expert tax preparation and filing services that can simplify the process of claiming this credit. In addition, we provide support throughout every step of the process, from determining your eligibility to submitting the necessary documentation to the IRS.
The following are a few of the specific services that we offer to businesses who are ready to claim their ERC:
One of the first steps in claiming the ERC is to determine your eligibility. This typically involves submitting financial documentation, such as profit and loss statements and tax returns, to the IRS. Our team can review your financial documents to ensure that you are eligible for the credit and help you gather any additional documentation that may be required.
In order to claim the ERC, you must have paid qualifying wages to your employees during the eligible period in the pandemic. Our team can review your payroll records to ensure that you are meeting this requirement. Additionally, we can help you calculate the amount of wages that qualify for the credit and assist you in correctly reporting this information to the IRS.
In order to claim the ERC, you must be able to demonstrate that your business has been impacted by the pandemic. We can review your business records to evaluate the extent of this impact and help you gather any additional documentation that may be require
Once we have determined that your business is eligible for the ERC, our team can help you identify which expenses qualify for the credit. We can review your records and receipts to ensure that you are including all eligible expenses in your claim. Additionally, we can help you calculate the amount of credit that you are eligible to receive based on your total qualifying expenses. With our expert guidance, filing your claim with the IRS will be quick and easy.
In order to claim the ERC, you must be able to demonstrate that your business has been impacted by the pandemic. We can review your business records to evaluate the extent of this impact and help you gather any additional documentation that may be required.
Navigating the tax code can be complicated, especially when claiming a new credit or deduction. Fortunately, our team at J.R. Martin CPA is here to help.
We offer extensive support for all tax-related issues, including the ERC. We can answer any questions that you have about the credit and provide expert guidance throughout the entire process. With our help, you can feel confident knowing that your claim is complete and accurate.
At J.R. Martin CPA, we understand that tax can be complicated. That’s why we offer expert guidance and support for all tax-related issues, including the ERC.
So far, we have evaluated many different businesses and helped them claim millions of dollars of this important credit. And we’re not stopping there. We are committed to providing the best possible service to our clients and ensuring that they receive the maximum amount of credit available to them.
Fill out the form to the right to learn more about how Employee Retention Credit can help your business.