ERC101: Does the Employee Retention Credit Need to Be Paid Back?

The federal government was quick to provide essential relief to businesses that were impacted by the pandemic and the challenges it caused. The Employee Retention Credit, also known as the ERC, was introduced to reward businesses for keeping employees on the payroll during those unpredictable and tumultuous times. Many businesses were forced to navigate government shutdowns and restrictions as well as adapt to new ways of operation. Because the relief aid was introduced so quickly, many parts of the program have been amended leaving many business owners confused about how to qualify. Read below to understand the ERC basics and find out if you qualify!

What is the Employee Retention Credit?

The COVID-19 pandemic greatly impacted businesses across the country. In response to the economic uncertainty and turmoil, Congress introduced the ERC program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020 to reward employers who kept employees on the payroll during the pandemic. In the simplest of terms, the ERC is a fully refundable credit filed against employment taxes. Employers could be eligible to receive up to $5,000 per employee available for the year 2020 and up to $7,000 per employee per eligible quarter in 2021. Businesses who haven’t filed for the ERC still have time to file retroactively.

Who Qualifies for the Tax Credit?

Determining if you qualify for ERC can be a bit stressful because several changes have been made to the program since it was first introduced. However, that doesn’t mean you should shy away from reaping the benefits that could be available to your business!

Your small business could be eligible if it was negatively impacted by these two major factors:

  • Full or partial shutdown due to government-mandated lockdown orders
  • Significant decline in gross revenue

There are, of course, exceptions to these main eligibilities which is why leveraging a knowledgeable tax technology firm, like Stenson Tamaddon, can help you navigate the complexities of the credit.

What is the Difference Between PPP Loans and Employee Retention Credit?

Paycheck Protection Program (PPP) loans gained much more traction than its sister program, the Employee Retention Credit (ERC) and if you’re reading this, you may have heard of the first but are curious about the latter. The PPP program offered a loan that provided money to businesses to offset costs and keep employees on the payroll. The Small Business Administration later offered forgiveness for the loan if a specific set of parameters were met. The ERC, on the other hand, is a fully refundable tax credit paid via the IRS that businesses can claim on eligible wages that were paid to W-2 employees during the pandemic.

The biggest difference between the two is that the PPP is a loan that may need to be paid back if your business wasn’t eligible for forgiveness. The ERC never has to be paid back. In fact, it comes as a check delivered straight to your business’s address.

Can You Claim ERC if You’ve Gotten Your PPP Loans Forgiven?

Yes! When the credit was first introduced in the CARES Act, businesses that were participating in the PPP program could not apply for the ERC. However, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 has made it possible for businesses to take advantage of both the PPP and the ERC. Due to this recent update, there have been many misconceptions floating around,  confusing business owners about their potential eligibility.

How Does Stenson Tamaddon Help You Maximize Your ERC?

Stenson Tamaddon prioritizes compliance with our proprietary technology that helps you maximize the amount of your business’s credit while minimizing risk. We get it – filing for ERC can be a daunting task. File with Stenson Tamaddon so you can rest easy knowing that your filing will be handled with care and compliance in mind. We can help you navigate the qualification process transparently and efficiently. We pride ourselves in helping small businesses reach their full potential. Reach out to one of our specialists today to get the money you deserve!

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