The COVID-19 pandemic has had a significant impact on businesses worldwide, forcing many of them to shut down or reduce their workforce. To help struggling businesses stay afloat during these challenging times, the US government introduced the Employee Retention Credit (ERC aka ERTC) tax credit.
This tax credit is designed to encourage employers to retain their employees by providing financial relief for certain qualified wages paid between March 13, 2020, and December 31, 2021.
Understanding the eligibility requirements for Employee Retention Credit is crucial for businesses looking to benefit from this tax credit. The eligibility criteria vary depending on the size of the business and the number of employees on payroll.
Small employers with fewer than 100 full-time employees in 2020 and fewer than 500 full-time employees in 2021 are eligible for ERC, while large employers with more than 100 full-time employees in 2020 and more than 500 full-time employees in 2021 must meet additional requirements to qualify.
This article will delve into the eligibility requirements for ERC and provide insights into how businesses can claim this valuable tax credit.
ERC Facts and Basics
Let’s dive deeper into the ERC Facts and Basics, where we’ll explore all the key details about this tax credit that can save businesses money. The Employee Retention Credit (ERC) is a tax credit aimed at helping employers retain their employees during tough times.
The eligibility rules vary for calendar years 2020 and 2021. It provides eligible employers with a refundable payroll tax credit of up to $5,000 per employee in 2020, and up to $7,000 per employee per quarter in 2021.
To be eligible for the ERC for 2020, an employer must have experienced a full or partial suspension of operations due to governmental orders or a significant decline in gross receipts by more than 50% compared to the same quarter in the prior year.
For an employer who on average had more than 100 full-time employees in 2019, qualified wages are generally those wages paid to employees not providing services because operations were fully or partially suspended or due to the decline in gross receipts. For an employer who on average had fewer than 100 full-time employees in 2019, qualified wages are generally those wages paid to all employees during a period that operations were fully or partially suspended or during the quarter that the employer had a decline in gross receipts.
For ERC eligibility in 2021, an employer must have experienced a full or partial suspension of operations due to governmental orders or a decline in gross receipts where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019. Eligible employers can claim a credit of up to $7,000 per employee per quarter on qualified wages paid after Dec. 31st, 2020, and before Oct. 1st, 2021.
By understanding these basics and facts about ERC eligibility criteria, businesses can take advantage of this tax credit, saving them money while retaining their valuable workforce.
ERC Eligibility for 2020
For 2020, eligible employers can save up to $5,000 per employee with the ERC if they experienced a decline in gross receipts or a full or partial suspension of operations due to governmental orders.
To be eligible for the ERC in 2020, employers must have had either a significant decline in gross receipts by more than 50% compared to the same quarter in the prior year or experienced a full or partial suspension of operations due to governmental orders.
The maximum credit for an employer who qualifies for the ERC is 50% of the first $10,000 in qualified wages, i.e., up to $5,000 per employee.
The definition of ‘qualified wages‘ varies depending on whether an employer had more than 100 full-time employees on average in 2019 or not.
For those who did have more than 100 full-time employees on average in that year, qualified wages are generally those paid to employees not providing services because operations were fully or partially suspended or due to the decline in gross receipts.
For those with fewer than 100 full-time employees on average that year, qualified wages are generally those paid during a period when operations were fully or partially suspended or during the quarter when there was a decline in gross receipts.
ERC Eligibility for 2021
You can claim the ERC tax credit for 2021 if your business experienced a decline in gross receipts or a full or partial suspension of operations due to governmental orders in any of the first three quarters of 2021. The gross receipts of that calendar quarter must be less than 80% of the gross receipts in the same calendar quarter in 2019 to qualify.
The amount of credit you can claim is up to 70% of qualified wages paid to employees after Dec. 31, 2020, and before Oct. 1, 2021. Qualified employers can claim a credit of up to $7,000 per employee per quarter for 2021, which is higher than the maximum credit offered for the previous year.
Eligible employers are defined as businesses with fewer than 500 full-time employees and those who had more than a partial suspension during one or more quarters due to government orders or economic conditions brought about by COVID-19. To qualify for ERC eligibility, businesses need to keep proper documentation and consult with experts like Experian Employer Services to ensure compliance with all regulations.
Employers have until April 15, 2025, to claim unclaimed credits from the ERC for the year 2021. Companies that missed claiming their credits earlier can still file amended employment tax returns and take advantage of this opportunity if they meet all requirements. Outsourcing the entire process to an ERTC Tax Expert may help maximize benefits while keeping compliant with all regulations related to ERC eligibility criteria.
Qualified Wages for ERC
Proper documentation and consulting with tax credit specialists are crucial for businesses to maximize their benefits while claiming qualified wages for the ERC. Qualified wages are defined as those paid to employees during a specific period that meets certain eligibility requirements.
For 2020, employers who had an average of more than 100 full-time employees in 2019 can claim the ERC on wages paid to employees not providing services due to a suspension of operations or decline in gross receipts. Employers who had an average of 100 or fewer full-time employees in 2019 can claim the ERC on all wages paid during a period of suspended operations or decline in gross receipts.
To take advantage of qualified wages for the ERC, businesses must have appropriate documentation available to show that they meet all compliance requirements. It’s also recommended that businesses consult with ERTC tax credit specialists who can help identify if they qualify for the credit and ensure proper payroll tracking and documentation.
By outsourcing the entire process, businesses can free up time and resources while maximizing their return. Claiming qualified wages for the ERC offers numerous benefits, including increased cash flow, reduced taxes owed, and improved employee retention rates.
By taking advantage of this tax credit opportunity, businesses can help their financial stability during uncertain times while remaining compliant with IRS regulations.
Claiming the ERC Tax Credit
Ready to maximize your tax savings? Let’s dive into how to claim the ERC tax credit.
To claim the ERC, employers must file Form 941, Employer’s Quarterly Federal Tax Return, for each quarter they wish to claim the credit. Employers can also claim the ERC on an amended return Form 941-X if they missed claiming it on a previous form.
When filing Form 941 or an amended return Form 941-X, employers must report the qualified wages and any other eligible expenses for which they’re claiming the credit. If they’ve already deposited their employment taxes, they can reduce their deposits by the amount of the anticipated credit and apply it against future payments or request a refund on Form 7200.
To ensure proper documentation and compliance with IRS regulations, businesses should keep records of all information used to determine eligibility for the ERC and calculate the amount of claimed credits. This includes documenting payroll data, gross receipts figures, government orders that caused closures or reduced business operations, and other relevant information required by law.
By following these steps in claiming the ERC tax credit, businesses can save money while remaining compliant with IRS regulations. Partnering with experienced ERTC Tax professionals can help ensure that businesses maximize their savings while avoiding common pitfalls related to eligibility requirements and claims processing.
Outsourcing ERC Process
Now that we’ve covered how to claim the ERC tax credit, let’s discuss outsourcing the process. Many employers find it challenging to navigate the complicated rules and regulations surrounding eligibility criteria for employee retention credit. In such cases, we would recommend using an ERTC Tax Expert, they can help businesses outsource the entire ERC process to free up time and ensure compliance.
An ERTC Tax Expert company can help businesses correctly claim their refund and help mitigate against an IRS Audit. Outsourcing the ERC refund process to them allows companies to focus on their core business activities while maximizing their returns.
When working with an ERTC Tax Expert, businesses consult with tax credit specialists who help identify if they qualify for ERC eligibility requirements, claim the full amount of credit, and ensure proper payroll tracking and documentation. This way, employers can maximize all possible benefits from claiming the ERC without worrying about missing out on any opportunities or making compliance mistakes.
Conclusion
In conclusion, the Employee Retention Credit (ERC aka ERTC) is a tax credit that’s been introduced to help businesses save money during the pandemic.
The eligibility criteria for ERC varies for calendar years 2020 and 2021, and it depends on the size of the business and the number of employees on payroll.
Small employers are businesses with 100 or fewer full-time employees for the 2020 ERC and businesses with 500 or fewer full-time employees for the 2021 ERC.
Large employers are businesses with more than 100 full-time employees for the 2020 ERC and businesses with more than 500 full-time employees for the 2021 ERC.
Furthermore, it’s important to note that qualified wages play a crucial role in determining eligibility for ERC.
Businesses can claim this tax credit by filling out Form 941-X and offsetting their payroll taxes against any amount owed.
It’s imperative that businesses understand these eligibility criteria to take advantage of this valuable opportunity during these challenging times.
