Is Your Business Eligible for a Refund?

The employee retention credit (ERC) is a refundable payroll tax credit that was put into law through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The ERC is for businesses that continued to pay employees while shut down due to COVID -19 restrictions or had significant decline in gross receipts from March 13, 2020 to September 30, 2021. This credit offsets employment taxes paid by an employer to offer relief from the COVID-19 pandemic.

The deadline for claiming the ERC for eligible quarters in 2020 is April 15, 2024. The deadline for claiming the ERC for eligible quarters in 2021 is April 15, 2025.

The ERC will be issued in the form of a cash refund that you will receive in the mail from the IRS. The IRS will send checks based on qualifying quarters. You may receivce several checks (e.g., one check per quarter). The IRS reserves the right to use funds as a credit towards back taxes.

“Yes, you will need to refile your income tax returns. The IRS has indicated your company’s wage expense (deduction) on their income tax return must be reduced by the amount of the ERC for the applicable tax year (2020 or 2021). You will need to file an amended federal and state income tax return for the taxable year of the credit to correct any overstated wage deduction.

Note: Any interest paid to you by the IRS would have to be reported on your income tax filing.”

The IRS issued these warnings, as there are many fly-by-night, so-called ERC “experts” or “consultants” that are misrepresenting their experiences and the parameters of the ERC program to employers. The ERC is a complicated tax program that requires deep expertise and understand of the nuances. When choosing an ERC company look for companies with a proven real track record and watch out for red flags (e..g, large upfront cost, no CPAs or tax professionals on staff)

While the timeline may vary based on the IRS workload, we are seeing clients receive refunds within a 4-10 month timeframe from filing. The timeline may vary as the IRS’s process varies.

The Employee Retention Credit (ERC) allows employers to claim a maximum credit amount of $21,000 per employee. For the tax year 2020, employers can claim up to 50% of qualified wages per employee, with a maximum credit of $5,000 per employee for the entire year. In contrast, for the tax year 2021, employers can claim up to 70% of qualified wages per employee per quarter, with a maximum credit of $21,000 per employee for the year. However, it’s worth noting that most businesses will only be eligible to claim qualified wages for Q1 through Q3 of 2021.

Unlike a loan or other form of business funding, the Employee Retention Credit (ERC) is a fully refundable tax credit that does not come with limitations on how it can be spent. As a result, businesses that qualify for the ERC can choose to spend their refund in any way they see fit.

No. Only W-2 employee wages can be claimed, and you cannot claim your own wages as a majority owner even if you are on a W-2 wage.

No. Only W-2 employee wages can be claimed for the credit.

Yes! You can apply for ERC, but you may not claim ERC on wages paid to family members of majority owners. This includes immediate family plus in-laws, aunts, uncles, and cousins.

Yes! Your business will be able to qualify for ERC if you had a full or partial suspension of operations.

The Employee Retention Credit (ERC) uses qualified wages as the basis for its calculation, which covers any wages paid that are subject to FICA taxes. These qualified wages can include various types of compensation, such as salaries, hourly wages, vacation pay, and certain health plan expenses, among others.

Yes. Under the Consolidated Appropriations Act, businesses can now qualify for the ERC even if they already received a PPP loan. Note, though, that the ERC will only apply to wages not used for the PPP.

Your business qualifies for the ERC, if it falls under one of the following:

• A government authority required partial or full shutdown of your business during 2020 or 2021. This includes your operations being limited by commerce, inability to travel or restrictions of group meetings.
• Gross receipt reduction criteria is different for 2020 and 2021, but is measured against the current quarter as compared to 2019 pre-COVID amounts.

“To qualify for the ERC, an employer must meet one of the following requirements:
A significant decline in gross receipts for any eligible quarter in 2020 or 2021- defined as a 50% reduction in revenue during any quarter in 2020 compared to the same quarter in 2019, or a 20% reduction in revenue in any quarter of 2021 compared to the same quarter in 2019.

A full or partial suspension of operations – due to orders from the federal government, or a state government having jurisdiction over the employer, limiting commerce, travel, or group meetings related to COVID-19. “

“Yes, your business qualifies for the ERC with a drop in revenue if it had a significant decline in gross receipts. The meaning of a significant decline in gross receipts differs between 2020 and 2021.

In 2020, a significant decline is defined as a 50% decrease compared to the same calendar quarter in 2019.

In 2021, a significant decline is defined as a 20% decrease compared to the same calendar quarter in 2019.”

Yes. Under the Consolidated Appropriations Act (CAA), businesses can qualify for the ERC even if they already received a PPP loan. Employers are allowed to claim ERC on wages that were not paid with the proceeds of a PPP loan. It is important to note that you can’t use wages to calculate ERC that were used to qualify for PPP loan forgiveness. This is known as “double dipping” and is not permitted by the IRS.

No, unlike a loan, this credit does not have to be repaid. If audited the IRS has the right to claw back the funds.