Employee Retention Credit Under the CARES Act
The COVID pandemic destroyed many businesses, which were forced to close their doors, and so congress created the Employee Retention Credit (ERC) program to encourage companies to keep employees on the payroll.
Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in 2020 to help businesses through the worst of the pandemic. And they gave special consideration to encouraging employers to keep their workers on the payroll. The Paycheck Protection Program (PPP), which was a loan program, received all the media attention. But ERC tax credits are worth 100s of thousands of dollars—and, in many ways, are more significant than PPP.
ERC is an employee tax credit as an actual cash incentive in the form of 6 checks you can claim which can be worth up to $26,000 per employee! If you are not sure whether your business qualifies for ERC or not, get in touch with our representatives today.
Many business owners are prematurely disqualifying themselves from ERC because of misinformation, or rumors. Sunrise Business Solutions | ERC Guaranteed offers you a 100% risk free process and guarantees you get the maximum this cash incentive has to offer. Call us or schedule a free 15-minutes appointment.
How Much is the Employee Retention Credit?
The CARES Act set the credit at 50% of a qualified employee’s wages for 2020. There was a maximum $10,000 income limit for a single employee. However, Congress revised the employee retention credit program in 2021. You can receive a credit up to 70% of a qualified employee’s wages for 2021. And the wage limit increased from $10,000 a year to $10,000 a quarter.
Is This an Income Tax Credit?
No. It is a payroll tax credit. For this reason, many businesses didn’t claim it for 2020 or for 2021 because their CPAs didn’t know about it. We specialize in payroll services, so we are available to help those retroactively claim their credit
Who Can Claim the Employee Retention Tax Credit?
You can claim the employee tax credit if:
- You fully or partially suspended business operations during a calendar quarter because of a governmental COVID order, or
- Your gross receipts declined significantly in a quarter.
A partial suspension must be more than shutting down a minor part of the business. Typically, the business operation must make up at least 10% of your gross receipts or 10% of the total hours performed by your employees.
What Are Examples of Partial Business Suspensions?
If your business was limited by a federal, state, or local order or decree, then you might qualify. This limitation can be direct or indirect. During the pandemic, many governments placed restrictions on indoor gatherings or whether certain businesses could even open. These restrictions caused a ripple effect throughout the economy.
- Transportation companies. Many trucks sat idle because manufacturers could not produce goods for transport due to government restrictions and difficulty sourcing materials.
- Health care providers. Masking and cleaning requirements forced dentists, chiropractors, and therapists especially to shut down or severely curtail hours.
- Restaurants and bars. Many state and local COVID orders prevented bars and restaurants from operating at full capacity. Even if they could open for outside service, many could serve far fewer customers.
- Fitness centers, gyms, and spas. Limitations on indoor gatherings hit these businesses hard. Many had to shut completely down or radically limit the number of customers at any time.
- Construction and manufacturing. COVID led to massive supply chain bottlenecks which made sourcing necessary materials impossible. Many companies pulled back operations as a result
If your business in any way was impacted by COVID, it’s worth checking whether you qualify.
How Do I Qualify with a Decline in Receipts?
This is the second way to qualify. A “significant” decline will depend on the quarter. Under the 2020 CARES Act, you suffered a significant decline if your receipts for a quarter were 50% below the comparable quarter in 2019.
Congress changed the definition, however, for 2020. A decline was significant if it represented a 20% drop in gross receipts compared to the same quarter in 2019.
There are other calculations which might work for you, so contact Sunrise Business Solutions | ERC Guaranteed.
Should I look to see if my business qualifies?
Yes. Most employers, such as hospitals, therapists, colleges, daycare centers, construction firms, manufacturing companies, and nonprofit organizations will qualify so long as their business was impacted by COVID or they saw a significant decline in gross receipts.
Is ERC Taxable Income?
No! The ERC credit is not income, so you won’t pay income taxes on it. However, you’ll need to reduce your deductible wage expenses claimed for your business in an amount equal to the credit.
How Much Can I Get?
For 2021, you can claim 70% of a qualified employee’s wages up to $10,000 per quarter. So, you get a refund check for every quarter you qualify, which means for the 3 quarters of the year 2021, it can reach up to 21k cash incentive. Qualified wages also include qualified health care expenses.
I Already Paid My Business’ Payroll Taxes—Why Claim ERC for 2020 or 2021?
This tax credit is yours to keep and do whatever you want with. It’s the government rewarding you for keeping employees on payroll. Even if you already paid payroll taxes for 2020 or 2021, you can retroactively claim ERC credit. The ERC application is applied retroactively in the 941X form.
How Do You Claim the ERTC Tax Credit?
Employers claimed the tax credit against their portion of the social security taxes when filing their 941 forms. You can claim the Employee Retention Credit for both 2020 and 2021, by filing an amended 941x return for each quarter.
When Does the ERC Program Expire?
Initially, Congress scheduled ERC for the qualifying period on December 31, 2020. But the Consolidated Appropriation Act 2021 extended ERC through June 30, 2021. The program was extended again to December 31, 2021, before being ended retroactively as of September 20, 2021. So the qualifying periods for ERC is 6 quarters from March 12, 2020 to September 30, 2021.
However, Recovery Startup Businesses were eligible to still receive ERTC through the end of 2021. You might qualify if your business started after February 15, 2020 and you had $1 million or less in gross receipts. This means they could continue to claim up to $50,000 in ERTC tax credit for the final two quarters of 2021.
When is the latest to file an amended return?
Although the program has ended, you have up to 3 years from the sunset date to file an amended return and claim your credits. The look back period will include all wages paid after March 12, 2020 to the end of the program on September 30, 2021.
Can You Take Employee Retention Credit and PPP Loan?
YES, you can. Initially, you couldn’t. The CARES Act stated that an employer receiving a PPP loan was ineligible for Employee Retention Credit unless they paid back their loan by May 18, 2020. Congress has since repealed this requirement. This means even those businesses which received PPP Loans are NOW eligible for ERC tax credits.
There is a limitation, however. Any wages paid with a PPP loan which is later forgiven do not count as qualifying wages for purposes of calculating your ERC credit.
Employee Retention Credit FAQ
Don’t guess whether you qualify for the program. Come talk to the experts in the field! Read our ERC FAQs for additional information
Will I have to pay back the employee retention tax credit?
No! This is a refundable tax credit, not a loan, it’s like a grant, a reduction of your payroll. The application processes a refund check for every quarter you qualify when we file your claim
Can I qualify if my revenue went up during the pandemic?
Yes. A decline in revenue is only one of the ways you can qualify. The other was a partial or full shutdown due to COVID-19. In particular, your business was fully or partially shut down due to a government order during 2020 or 2021, including limitations on travel or group meetings.
Some common situations include:
- Restaurants limiting on-site dining or even closing fully.
- Moving theaters closing due to quarantine orders.
- Businesses unable to meet with clients in person due to COVID restrictions.
- Businesses limiting operating hours because of COVID restrictions.
- Any business which needs to delay production because of a supply chain disruption.
Even if your revenue went up for 2020 or 2021, you could still claim the employee retention credit if you suffered a full or partial shutdown.
Has Congress fully funded the program?
The ERC Credit is not a lending program, so the government doesn’t make loans. Instead, the Treasury issues refunds to those who qualify.
Can I receive more than I paid in income taxes?
Yes. This credit applies to payroll taxes, not income taxes. For this reason, you can receive more than you paid in income taxes.
Are self-employed people eligible for the employee retention tax credit?
Not if you own more than 50% of your company. Your wages don’t qualify for the ERTC.
Do my family members’ wages count?
It depends. If you have majority membership in your business (meaning more than 50%), then neither your wages nor the wages of immediate family members qualify. However, if you have less than 50% ownership, your wages qualify, as do your immediate family members.
How do I get started?
The process is simple, and Sunrise Business Solutions | ERC Guaranteed are your experts. Reach out to us today and we will begin gathering necessary data and provide a calculation of how much you can receive for ERC. We can then complete the required amended payroll returns and file for your refund- all in 1 week.
How long do I need to wait to get my ERTC Tax Credit?
We prepare and file all your ERC paperwork in 1 week. The IRS promises to issue ERC refunds within 16 weeks. We can discuss your schedule with you. Schedule your free 15-minute consultation now.
Who do I contact if I have questions about what is the ERC?
For all your ERC questions, get in touch with Sunrise Business Solutions | ERC Guaranteed experienced accountants. We will help you qualify, and get the maximum ERC amount you can get.