The pandemic caused many businesses to shut down their services temporarily. Some businesses never recovered, while others held onto their employees and navigated less profitable quarters. Financial relief is available for businesses that retained employees during the pandemic, and it comes as a tax credit.
Business owners should strive to capitalize on as many tax credits as possible. Every tax credit allows you to save extra money and can help you achieve business objectives. Extra money makes it easier to maintain operations and tap into new market opportunities. Given that some businesses raise funds through loans and lines of credit, tax credits are a no-brainer for any company that qualifies for them. Some businesses that stayed open during the pandemic and held onto their workers may qualify for the Employee Retention Credit (ERC) Program.
Introduction to the ERC Program
If this is your first time hearing about the ERC Program, don’t worry. This quick guide will get you up to speed. You will learn who the program is intended to help and the qualifications for Employee Retention Credits.
What is the ERC Program?
The ERC Program distributes tax credits for eligible business owners who held firm during the pandemic. Qualifying business owners needed to retain employees during the pandemic. This program only applies to small and mid-sized businesses. Since the ERC Program gives out tax credits, you do not have to worry about paying them back. Businesses can receive a tax credit of up to $26,000 per employee through this program.
History and Background of the ERC Program
The ERC Program is a part of the CARES Act and helps businesses financially recover from some of the losses incurred during the pandemic. A COVID event or decreased revenue during the pandemic can help you qualify. Assessors from the ERC Program will look at how your business performed in 2020 and the first three quarters of 2021. The tax credit you receive depends on the number of employees you hired and how much you paid them in 2020 and the first three quarters of 2021. You can use this tax credit to receive a refund from the IRS.
Key Objectives of the ERC Program
The ERC Program strives to help businesses that retain employees while experiencing declining revenue during the pandemic. The ERC program’s limit on the number of full-time employees prevents corporations from taking advantage of the tax benefit. The requirement for revenue decline also prevents businesses that performed well during the pandemic from receiving an extra tax benefit. The ERC program only caters to businesses and tax-exempt organizations. Individuals cannot apply for this tax credit.
Get Your Employee Retention Credit (ERC) Refund
ERC Guaranteed can help you get the employee retention credit you deserve. Learn here the key details and what helps the tax firm stand out.
ERC Today can help businesses receive tax breaks through the ERC program. This guide will share what you need to know about the company.
Wondering if Newity is the right small business lender for you? See the key details here so you can decide if the lender makes sense for you.
Who is Qualified for the ERC Program?
Small and mid-sized business owners who experienced declining revenue in 2020 or the first three quarters of 2021 may qualify if they retained employees. Your business must have experienced a 20% decline in gross receipts compared to the same time frame in 2019. For instance, if you reported $100,000 in the first quarter of 2019, you would need to earn less than $80,000 in revenue in the first quarter of 2021 to qualify for the ERC Program.
You can also qualify for the ERC Program if your company had its operations suspended due to a government order during the pandemic. The suspension can be full or partial. People who suspended their business operations based on their decision instead of a governing body’s request may still qualify for the ERC Program.
What are the Eligibility Requirements for ERC?
Your business must have been suspended fully or partially because of the pandemic while reporting a significant decline in gross receipts. Employers operating businesses or tax-exempt organizations are eligible. However, business owners working with the government, agencies, and instrumentalities are not eligible for the ERC Program.
What are the Benefits of the ERC Program?
The main benefit of the ERC Program is getting a tax break. Credits will minimize your taxes and can help you get a tax refund. Every business owner likes extra money, and these funds can help you stay in business or expand operations. You can apply for the ERC Program yourself or work with a company that will handle the paperwork for you. However, the main benefit of these programs is getting a tax refund through credits.
How Much Money Can Your Business Receive from the ERC Program?
Business owners can receive up to $26,000 in tax credits per employee. Companies must demonstrate a sufficient decline in gross receipts in 2020 and the first three quarters of 2021 to receive the maximum tax credit. Checking all of the boxes in 2020 results in a $5,000 tax credit. Each qualifying quarter in 2021 represents a $7,000 tax credit for each qualifying employee. Combine the tax credits together, and you can get up to $26,000 in tax credits per employee.
Is There a Deadline for Filing ERC Claims?
The deadline for filing ERC claims is April 15, 2024. Employers must submit a 941-X form before this deadline. Employers applying for the ERC Program because of activity in Q1, Q2, or Q3 of 2021 have until April 15, 2025, to file their ERC claims.
How Long Does It Take to Get ERC Funding?
It can take 6-8 weeks to receive ERC Funding. Some companies that assist business owners with ERC may give you small loans equal to the tax credit before you receive it. This approach allows you to access your funds more quickly. You get to use the loan’s proceeds now and then repay it with the cash you receive from the ERC Program.
Get Your Employee Retention Credit (ERC) Refund
ERC Guaranteed can help you get the employee retention credit you deserve. Learn here the key details and what helps the tax firm stand out.
ERC Today can help businesses receive tax breaks through the ERC program. This guide will share what you need to know about the company.
Wondering if Newity is the right small business lender for you? See the key details here so you can decide if the lender makes sense for you.
Other Things You Should Consider for the ERC Program
The ERC Program has a lot to offer for small and mid-sized businesses that were impacted by the pandemic. However, before you rush to file your ERC claims, you should know these details.
Not All Industries Qualify
The ERC Program does not specify which industries do not qualify for employee retention credits. Chances are you shouldn’t have a problem with receiving tax credits as long as your business is eligible based on declining revenue in 2020 and/or 2021.
Not All Wages Qualify
The ERC Program has limits on how much wages count toward the tax credit. You can only use 70% of an employee’s wages for the first three quarters of 2021, and that has a $10,000 limit. For instance, if an employee earned $10,000 in the first quarter, you can receive a $7,000 tax credit if your business is eligible. If another employee earned $20,000 in the same quarter, you are only eligible for $7,000 for that employee. A higher salary does not increase the tax credit beyond $7,000 per quarter.
Your employee must have received at least $10,000 per quarter to qualify for the maximum $21,000 tax credit for 2021. The remaining $5,000 tax credit comes if your business qualifies for 2020 and your employee earned sufficient wages. For 2020, the ERC equals 50% of an employee’s wages, up to $10,000.
Part-time and full-time employees are eligible for the calculation. Healthcare plan costs are included, so if your employee earns slightly less than $10,000 per quarter, the healthcare costs can get you to the $10,000 threshold.
Other Program ERC Limitations
A company’s size also impacts its ability to qualify for ERC. While small and mid-sized businesses are eligible, the ERC Program laid out specific numbers based on the number of full-time employees.
To qualify for ERC based on 2020 business activity, a company must have had 100 or fewer full-time employees. The maximum number of full-time employees will rise to 500 for the first three quarters 2021. You can receive ERC for part-time employees, but they do not go toward the 100 and 500-employee requirements.
Watch Out for ERC Scam Promotions
The ERC Program is relatively new and offers promising tax breaks for qualifying businesses. Some scammers have taken advantage of this new opportunity and have tried to steal people’s money. You should be wary of upfront charges, unsolicited outreach, and overpromising. Companies that offer ERC services cannot guarantee that you will receive tax credits, and not every business is eligible for the maximum $26,000 tax credit per employee.
You can look for a company’s online reviews to see if they are legitimate or not. It is a good idea to let professionals craft and file your documents for you. Legitimate ERC companies know how to work through a 941-X form and ensure it is submitted correctly.
What is the Process for Applying for ERC?
Employers have to submit adjusted employment tax returns to claim credit from 2020 and 2021. You will have to file a 941-X form to claim the Employee Tax Credit. You should get help from a tax professional during this process. You will have to pay a portion of your tax refund to the accountant or a reasonable upfront fee. However, you can save a lot of time if you get help during this process and work with a professional.
