What Is The ERC Program? - ERC Explained
Did your business keep employees on the payroll at the height of the COVID-19 pandemic? The Employee Retention Credit is a tax credit that can be claimed by businesses that retained their employees during the COVID-19 pandemic. It is a temporary credit created under the Coronavirus Aid Relief and Economic Security (CARES Act) and was signed into law on November 2021. The tax credit was designed to encourage businesses to retain their employees on the payroll even if their business has been adversely affected by the COVID-19 pandemic. If your business was able to keep your employees on payroll between 3/12/20 and 12/31/20, your business might be eligible for a refundable tax credit. Although businesses can no longer claim wages on the ERC, they have until 2024 to look back on their payroll during the height of the pandemic and claim the credit retroactively. Now is a great time to reach out to your tax accountant or payroll advisor to see if you qualify.
​
Who Qualifies For The ERC?
The employee retention credit is a tax credit designed to help businesses that were financially affected by the COVID-19 pandemic while retaining their employees. To qualify for the credit, a business must meet the following requirements:
-
The business must have experienced a full or partial suspension of operations due to an order from a governmental authority limiting commerce, travel, or group meetings due to COVID-19.
-
The business must have also experienced a significant decline in gross receipts. A significant decline in gross receipts is defined as a decline of 50% or more in a calendar quarter compared to the same quarter in the prior year.
-
The business must be an eligible employer, which includes most types of businesses, including sole proprietorships, partnerships, corporations, and nonprofit organizations.
-
The business must have paid wages to its employees during either the full or partial suspension of operations or the significant decline in gross receipts.
If a business meets these requirements, it may be eligible to claim the employee retention credit. It is important to note that the employee retention credit is not available to employers that received a Paycheck Protection Program (PPP) loan unless the loan is forgiven in full. Additionally, PPP loan funds used to pay employee salaries are not eligible for the ERC credit.
Employee Retention Credit - ERC Requirements
The Employment Retention Credit (ERC) is a tax credit available to eligible employers in the United States who have experienced a significant decline in gross receipts or have had to fully or partially suspend operations due to COVID-19.
To be eligible for the ERC, an employer must meet the following requirements:
-
The employer must have been in business in 2020 and had employees on the payroll.
-
The employer must have experienced a significant decline in gross receipts, defined as a decline of at least 50% in a quarter compared to the same quarter in the prior year.
-
The employer must have fully or partially suspended operations due to orders from a governmental authority limiting commerce, travel, or group meetings due to COVID-19.
-
In addition, the ERC is only available to employers with 500 or fewer employees.
Employers who are eligible for the ERC can claim the credit on their quarterly employment tax returns (Form 941). The credit is equal to 50% of qualified wages paid to employees, up to a maximum of $10,000 per employee. Qualified wages are those wages paid to employees who are not working due to the decline in business or the suspension of operations due to COVID-19.
The ERC is available for wages paid between March 13, 2020 and January 1, 2021.
What Documents Are Needed To Claim The Employee Retention Credit?
​
We advise talking to your accountant or payroll provider to get started. However, here are some steps to begin claiming the Employment Retention Credit (ERC). Employers will need to provide the following documentation:
-
Proof of the employer's eligibility for the credit, including documentation demonstrating that the employer experienced a significant decline in gross receipts or had to fully or partially suspend operations due to COVID-19.
-
Documentation of the wages paid to employees, including pay stubs, W-2 forms, and payroll records.
-
Documentation of the qualified wages paid to employees, including records of the dates and amounts of the wages paid and the reasons for the payments (e.g., the employee was not working due to the decline in business or the suspension of operations due to COVID-19).
-
Form 941, Employer's Quarterly Federal Tax Return, or other appropriate employment tax return, to claim the credit.
​
It is important to keep detailed and accurate records of the wages paid to employees and the reasons for the payments, as these will be used to calculate the credit and may be required to support the claim for the credit.
How Do I Claim My ERC?
To claim the employee retention credit, eligible employers must file Form 941, "Employer's Quarterly Federal Tax Return," and include the credit on the form. We recommend getting started by discussing your options and qualifications with your accountant or payroll advisor. The credit can be claimed for wages paid to employees during either a full or partial suspension of operations due to a governmental order related to COVID-19 or a significant decline in gross receipts.
More information on Form 941-X can be found here: https://www.irs.gov/forms-pubs/about-form-941-x
In addition to filing Form 941, employers may also need to file Form 7200, "Advance Payment of Employer Credits Due to COVID-19," to request an advance payment of the employee retention credit. This form can be used to request an advance credit payment if the employer expects to have a tax liability for the quarter that is less than the credit they are entitled to claim.
It is important to note that the employee retention credit is not available to employers that received a Paycheck Protection Program (PPP) loan unless the loan is forgiven in full and the employer elects to forego the employee retention credit.
Does The Employee Retention Credit (ERC) Need To Be Paid Back?
No, the ERC program does not need to be paid back. Unlike the PPP program, the ERC program is a grant offered for employers and businesses that kept their employees on the payroll at the height of the COVID-19 pandemic.
When Does The Employee Retention Credit Expire?
Although businesses can no longer claim wages on the ERC, they have until 2024 to look back on their payroll during the height of the pandemic and claim the credit retroactively. Now is a great time to reach out to your tax accountant or payroll advisor to see if you qualify.
​
The Employee Retention Credit is a tax credit available to eligible employers for wages paid to employees during certain periods in response to the COVID-19 pandemic. The credit was originally available for wages paid from March 13, 2020, through December 31, 2020, but it was later extended by the American Rescue Plan Act of 2021.
Under the extension, the Employee Retention Credit is now available for wages paid from January 1, 2021, through June 30, 2021. The credit is available to eligible employers experiencing a full or partial suspension of operations due to a COVID-19 related shut-down order or with a significant decline in gross receipts.
It's important to note that the Employee Retention Credit is a temporary measure that has been put in place to help businesses affected by the COVID-19 pandemic. It is not a permanent tax credit and is not available for wages paid after June 30, 2021. If you have questions about the Employee Retention Credit and whether your business is eligible, you should consult with a tax professional or the Internal Revenue Service (IRS).
ERC Calculator - How Is The ERC Calculated?
The employee retention credit is calculated based on the qualified wages paid to employees during either a full or partial suspension of operations due to a governmental order related to COVID-19, or a significant decline in gross receipts. Qualified wages are defined as wages that are paid to employees while they are not providing services due to either of these circumstances.
To calculate the credit, employers must determine the number of qualified wages paid to each employee during the credit period. The credit period runs from March 13, 2020, through December 31, 2020. The maximum amount of qualified wages that can be taken into account for each employee is $10,000 for the entire credit period.
Once the qualified wages have been determined, the credit is calculated by multiplying the qualified wages by the applicable credit rate. The credit rate is 50% for wages paid from March 13, 2020, through December 31, 2020. This means that the maximum credit that can be claimed for each employee is $5,000.
For example, if an employer pays an employee $8,000 in qualified wages during the credit period, the credit that can be claimed for that employee would be $4,000 (8,000 x .50).
​
ERC Program Deadline
​
The credit is available for wages paid from March 13, 2020, through December 31, 2021. However, the deadline for claiming the credit may vary depending on the specific circumstances of your business.
Although businesses cannot claim the ERC credit on their wages after September 2021, qualified businesses have until 2024 to retroactively claim the ERC credit. Wages paid after March 12, 2020, through the end of the program are eligible for the ERC program. Most businesses can claim the credit on wages until September, 30 2021.
Bottom Line:
We find that many businesses do not have access to experts that can help guide them through making the best business decisions. We are here to help.
If your business was able to keep your employees on payroll between 3/12/20 and 12/31/20, your business might be eligible for the refundable ERC tax credit. We recommend talking to your accountant or payroll advisor to get started and see if you qualify. To be eligible for the credit, an employer must have experienced a full or partial suspension of operations due to a COVID-19-related shut-down order or must have experienced a significant decline in gross receipts.
It’s important to take action on this credit now, as it can take time to claim and receive the credit. You should speak to your business accountant or payroll specialist to determine if you qualify and assist in claiming the credit. The Overmyer Insurance Agency has a network of many reputable accounting and payroll specialists that can assist you. Reach out anytime, and we would be happy to help. Call or click today.