The Employee Retention Credit (ERC) was created during the coronavirus pandemic to encourage businesses to keep their employees, and was introduced as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
While the ERC has proven beneficial to many businesses, the guidance surrounding this credit is lengthy and can be complicated based on your business’ circumstances.
Below you will find the questions, and answers, that will help you determine if your business is eligible.
Are you eligible?
This credit is available to employers who meet one of the following:
- Business was 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.
- 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).
Qualified recovery startup businesses can claim the Employee Retention Credit for the third and fourth quarter of 2021. For the purpose of the ERC, 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).
Is there still time?
Employers have three years from the date the original return was filed, or two years from the date the taxes were paid, to file an IRS Form 941-X.
What’s Next Steps?
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, contact Jeff Dorris by calling 770-955-8600 or emailing jdorris@mjcpa.com.
