The Employee Retention Credit (ERC) has proven to be a valuable benefit for businesses affected economically by COVID-19. The credit’s complicated eligibility rules, however, may have prevented some businesses from taking advantage of the financial relief it offers. The good news is there’s still time to take advantage of the ERC and our professionals are here to help.
Below, we’ve outlined the ERC program, eligibility for the ERC, along with the deadline for claiming this credit.
ERC Definition & Eligibility
The ERC is an employer federal payroll tax credit based on wages paid (including tips) per quarter, after March 12, 2020 and before October 1, 2021* by an employer whose business operations:
- Were fully or partially suspended due to a COVID-19 related governmental order; or
- Experienced a significant reduction in quarterly gross receipts (>50% in 2020, >20% in 2021) as compared to the same quarters in 2019.
Businesses in most industries qualify for the ERC, including restaurants, construction, nonprofit organizations and more. The maximum credit available is $26,000 per employee, separated into four separate periods:
- 50% of wages (including employer paid health plan expenses) per employee up to $10,000 paid from March 13-December 31, 2020. The maximum credit is $5,000 per employee.
- 70% of wages (including employer paid health plan expenses) per employee up to $10,000 paid in each quarter for the first three quarters in 2021. The maximum credit is $7,000 per employee per quarter (i.e., $21,000 in 2021).
Note that qualified recovery startup businesses can claim the ERC for the third and fourth quarter of 2021. For the purpose of the Employee Retention Credit, a Recovery Startup Business is one that:
- Started operations on or after February 15, 2020;
- Maintains average annual gross receipts that do not exceed $1 million;
- Employs one or more employees (other than 50% owners); and
- Does not otherwise qualify for the Employee Retention Credit (i.e., its business operations were not fully or partially suspended due to government orders nor did they experience a decline in gross receipts).
For more detailed information on recovery startups and the ERC, read this article.
Businesses have up to three years to claim the ERC for prior quarters by filing an applicable adjusted employment tax return. Thus, the statute of limitations begins to expire in April 2024.
Given that this is a refundable credit, there is no reason to wait to claim the ERC. Our dedicated professionals will work with you to see if your business qualifies for this credit and guide you through next steps. For more information and to see if your business is eligible for the ERC, please contact Betsi Barrett or Tim Watt by calling 770.396.2200.