Who Qualifies for an Employee Retention Tax Credit?

Who Qualifies for an Employee Retention Tax Credit?

This IRS Payment (It’s Not a Loan) Helps Businesses Rebound from Covid

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Many U.S. business owners are only vaguely familiar with the Employee Retention Tax Credit (ERTC), also called the ERC for short, and are uncertain about whether they’re qualified to receive it. The ERC is a dollar-for-dollar reduction against the federal employment taxes that employers pay and report on a quarterly basis in their Employer Federal Tax Return (Form 941).

The ERC was authorized to encourage business owners to keep employees on their payrolls. It was created under the CARES Act, a federal law designed to help businesses survive the Covid-19 pandemic. A business can claim the credit on qualifying wages – tipped wages are eligible, the National Restaurant Association points out – paid to employees for any quarter between March 13, 2020, and Sept. 30, 2021.

There’s also limited eligibility for the fourth quarter of 2021. For those three months of that year, only start-up companies may be qualified to claim the ERC. And if your business hadn’t even launched in 2019, it may still qualify for an ERC. The business owner is allowed to use a corresponding quarter in 2020 to document a revenue reduction between 2020 and 2021 and thus qualify for an ERC payment from the Internal Revenue Service, according to the U.S. Chamber of Commerce.

Deadlines for Filing

“Employers may still claim this tax credit for qualifying wages paid to employees,” says Sunshine Chapman, founder and president of ERC Provider, a company that helps businesses file a 941-X tax form to receive this tax credit. “To receive ERC for the federal taxes paid for their workers in 2020, business owners need to file by April 15, 2024. They have until April 15, 2025, for federal employment taxes paid in 2021. The amount can be tens of thousands of dollars for each worker, and the money does not have to be repaid. It is not a loan.”

ERC Provider

Eligible businesses can receive as much as $7,000 per employee per quarter for the first three quarters in 2021, which equals $21,000 per employee, the U.S. Chamber of Commerce states. Companies also might qualify for a break of $5,000 per employee for all of 2020.

What Businesses Qualify?

“The ERC is particularly helpful for small businesses that don’t have the deep pockets necessary to weather long economic downturns,” Chapman says. “Even self-employed people can claim a credit if they have one or more employees.” A Forbes report notes that different rules apply to small and large companies, but there are generally two qualifying criteria:

  1. The business’s gross receipts fell at least 50% during a quarter in 2020 quarter or at least a 20% decline for a quarter in 2021 compared to the same quarter in 2019.
  2. The business experienced a full or partial suspension of operations because of a government order that limited commerce, travel or group meetings. This qualifier also applies to suppliers of a business. If a business can prove its operations were impacted because of the inability to obtain goods or materials from its suppliers, it may qualify for ERTC based on these types of obstacles.

Generally speaking, Chapman says, qualifying wages generally reflect money paid to employees who weren’t providing services because their employer’s operations were fully or partially suspended or else qualify because of the decline in gross receipts.

How PPP Affects Eligibility

Some businesses that received first- and second-draw Paycheck Protection Program loan funds may still be eligible for ERC. Initially they weren’t eligible for an ERC if they received PPP, but the ERC program was changed. But companies can’t claim twice for the same money paid for an employee or employees, Chapman says. “There’s no double-dipping on the same wages for PPP and ERC,” she says.

Steps in Applying

The steps to receiving an ERC are: 1) Figure out whether your business is eligible. 2) Determine the qualified wages by compiling all of your 941 returns, PPP loan documents, payroll figures and profit and loss statements/P&Ls. 3) Complete and file Form 941-X along with a quarterly tax filing with the IRS.

“Many accountants and tax preparers aren’t well-versed with the ERC regulations and Form 941,” Chapman says. “My company specializes in securing these tax credits and cuts through the red tape to ensure that business owners receive all of the money that they’re entitled to. The IRS typically issues this tax credit by sending a check to you, and it may be applied to payroll taxes.

All of the ERC specialists at ERC Provider pay very close attention to the details and documents for accuracy with each filing. This is crucial to obtaining an ERC payment.

ERC Provider’s Niche

“Tax laws change constantly, and it’s hard for business owners and even accountants to keep up with every nuance the way that ERC Provider does. Even the ERC regulations have gone through evolutions over eligibility requirements and the dollar amounts of credit.

“That’s why I created ERC Provider, which takes a small percentage of the ERC that a company receives in return for doing the heavy lifting with claims and supporting documentation. All of the ERC specialists at ERC Provider pay very close attention to the details and documents for accuracy with each filing. This is crucial to obtaining an ERC payment.”

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Mary Vinnedge is an award-winning journalist who has served as editor in chief, managing editor and senior editor at national and regional publications, including SUCCESS and Design NJ magazines. She also held reporting and editing roles at The Dallas Morning News and Charlotte Observer newspapers.

Before Mary began covering franchise news and trends as a staff writer for FranchiseWire and Franchise Consultant Magazine, she developed articles on topics ranging from lifestyle, education, health and science to home projects, horticulture, gardening, interior design and architecture. These articles included her reporting on academic news at her alma mater, Texas A&M University, when Mary worked in the marketing department of the Texas A&M Foundation. She continues to be a news junkie and subscribes to several publications.

Today Mary and her husband are empty nesters living on Galveston Island near Houston. The couple’s blended family – scattered around the United States – includes five children, four grandchildren and two very spoiled, very barky miniature schnauzer rescues.
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