Did you retain your W2 employees in 2020 and/or 2021?If so did you experience ANY of the following:
50% Reduction In 2020 - If there is a reduction in your gross receipts in 2020 when comparing to the same quarter in 2019 by at least 50%
20% Reduction in 2021 - If there is a reduction in your gross receipts in 2021 when comparing to the same quarter in 2019 by at least 20%
If a governmental order had more than a nominal impact on your business operations, such as:
- Required to fully or partially suspend operations tied to governmental orders.
- Inability to obtain critical goods or materials from suppliers because they were required to suspend operations due to governmental orders.
- Limiting occupancy to provide for social distancing due to governmental orders.
- Governmental orders to shelter in place preventing employees from going to work.
- Other similar impacts from government.
Note: the IRS has announced it will not accept new ERC credit claims until after January 1, 2024. We will still continue to prepare your claim and assess your eligibility so that you can be among the first in line when that time comes.
What are ERCs?
The Employee Retention Credit (ERC) is a Payroll Tax Credit Refund designed to reward businesses for retaining employees during COVID-19.
Business Owners can receive a refundable credit up to $5,000 per employee in 2020, and $7,000 per employee, per quarter (excluding the 4th quarter), in 2021 for qualified wages. The total refund can total $26,000. This is NOT a loan. It is a refund check you can spend as you wish.
The credit was initially signed into law March 2020 as part of the CARES Act. The credit was later expanded upon with the Consolidated Appropriations Act in December 2020 and the American Rescue Plan Act in June 2021.
ERC Frequently Asked Questions
To be eligible, your business needs to have experienced one of the following adverse effects:
1. During 2020 or 2021, your business operations were either partially or fully suspended due to orders from a governmental authority. This could be due to restrictions on commerce, travel limitations, or prohibitions on group meetings.
2. The criteria for a reduction in gross receipts differs for 2020 and 2021, but it's evaluated by comparing the gross receipts of the current quarter to those of the same quarter in 2019, before the COVID-19 pandemic. It's possible for a business to meet the eligibility criteria for one quarter but not for another.
Originally, the 2020 CARES Act stipulated that businesses that had received a Paycheck Protection Program (PPP) loan couldn't qualify for the ERC. However, subsequent legislation in 2021 has made it possible for employers to be eligible for both programs.
Indeed, applying for the ERC will necessitate refiling your income tax returns. The IRS stipulates that your company's wage expense (or deduction) on its income tax return must be decreased by the amount of the ERC for the relevant tax year (either 2020 or 2021). Consequently, you'll need to submit an amended federal and state income tax return for the tax year in which the credit was received to rectify any overstatement of the wage deduction.
Please note: Any interest that the IRS pays to you will need to be declared on your income tax filing.
The IRS has issued warnings about third-party processing companies because there has been a rise in the number of self-proclaimed ERC "experts" or "consultants" who misrepresent their expertise and the specifics of the ERC program to employers. The ERC is a complex tax program that necessitates a thorough understanding and knowledge of its intricacies.
When selecting an ERC company, it's advisable to opt for companies with a proven track record. Be cautious of potential red flags such as substantial upfront costs or a lack of certified public accountants or tax professionals on their team.
No, the Employee Retention Credit (ERC) is not a loan and therefore does not need to be repaid.
However, if an audit by the IRS reveals any discrepancies, they reserve the right to reclaim the funds.
Indeed, your business can still qualify for the Employee Retention Credit (ERC) even if you've already received a Paycheck Protection Program (PPP) loan. This became possible under the Consolidated Appropriations Act (CAA).
However, you can only claim the ERC on wages that were not paid using the PPP loan funds. It's crucial to understand that wages used for PPP loan forgiveness cannot be used to calculate the ERC. The IRS does not permit this practice, often referred to as "double dipping”.
Indeed, your business can qualify for the Employee Retention Credit (ERC) if it has experienced a substantial reduction in gross receipts. However, the definition of a "significant decline" in gross receipts varies between 2020 and 2021.
For 2020, a "significant decline" is defined as a 50% reduction in gross receipts when compared to the same calendar quarter in 2019.
For 2021, a "significant decline" is defined as a 20% reduction in gross receipts when compared to the same calendar quarter in 2019.
To be eligible for the Employee Retention Credit (ERC), an employer must satisfy one of the following conditions:
1. A substantial decrease in gross receipts during any eligible quarter in 2020 or 2021. This is 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.
2. A full or partial suspension of operations due to orders from the federal or a state government with jurisdiction over the employer. These orders must limit commerce, travel, or group meetings due to COVID-19.
The Employee Retention Credit (ERC) can only be claimed on wages paid to W-2 employees. As a majority owner, even if you receive a W-2 wage, you cannot claim your own wages for the ERC.
The Employee Retention Credit (ERC) can only be claimed on wages paid to W-2 employees. Wages paid to 1099 employees are not eligible for the credit. However, if you also had W-2 employees during the eligible period, you could potentially claim the credit for the wages paid to those W-2 employees.
Yes, your business can still qualify for the Employee Retention Credit (ERC) if it meets one of the following conditions:
1. Your business was fully or partially suspended during 2020 or 2021 due to orders from a governmental authority. This includes situations where your operations were limited by restrictions on commerce, travel, or group meetings.
2. Your business experienced a reduction in gross receipts. The criteria for this reduction differs for 2020 and 2021, but it's generally measured by comparing the gross receipts of the current quarter to those of the same quarter in 2019, before the COVID-19 pandemic.
To claim the Employee Retention Credit (ERC), a business will need to provide various documents to support its eligibility and calculate the credit accurately. The specific documents required may vary based on the individual circumstances of the business, but here are some common documents that businesses typically need to provide:
1. Payroll Records: Detailed records of wages paid to employees, including names, Social Security numbers, hours worked, and wage rates. These records should cover the eligible quarters from March 13, 2020, to September 30, 2021.
2. Quarterly Payroll Tax Forms: Forms 941 (Employer's Quarterly Federal Tax Return) for each eligible quarter. These forms report wages, tips, and other compensation paid to employees, as well as federal income tax, Social Security tax, and Medicare tax withheld.
3. Quarterly Financial Statements: Financial statements that show the business's gross receipts for each eligible quarter in 2019, 2020, and 2021 (if applicable). This helps demonstrate the reduction in gross receipts, which is one of the eligibility criteria for the ERC.
4. Documentation of Partial or Full Suspension (if applicable): If the business experienced a partial or full suspension of operations due to government orders during 2020 or 2021, it will need to provide relevant documentation, such as official government orders or other supporting evidence.
5. PPP Loan Information (if applicable): If the business received a Paycheck Protection Program (PPP) loan, it will need to provide documentation related to the loan, including the loan amount and the periods for which it was used to pay wages.
6. Documentation of Qualified Health Plan Expenses (if applicable): If the business is including qualified health plan expenses in the calculation of ERC, it will need to provide documentation to support those expenses.
7. Documentation of ERC Credits Previously Claimed (if applicable): If the business has previously claimed ERC credits, it should have records of the credits already taken.
8. Supporting Documentation for Other Eligibility Requirements (if applicable): Depending on the specific situation of the business, there may be other eligibility requirements that need to be supported with relevant documentation. For example, if the business experienced a significant decline in gross receipts, it should have documentation showing the revenue figures for the relevant quarters.