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Common Questions About ERC

What is Employee Retention Credit?
Employee Retention Credit (ERC) is a fully refundable payroll tax credit filed against employment taxes. ERC was set up as part of the Coronavirus Aid, Relief and Economic Security Act (CARES) and was created in 2020 during the COVID-19 pandemic to help businesses recover from economic fallout that occurred. It essentially provides funding to businesses to make up for what was lost during the pandemic. Many companies will argue that the ERC has been their lifeline post-coronavirus outbreak.

Congress decided to pass the Consolidated Appropriations Act of 2021 (CAA) after realizing the initial ERC was not reaching as many businesses as originally hoped. The new goal was to reach more businesses and help more people stay employed. Credit from employment tax deposits can range from $5,000 to $21,000 per employee and is essentially a reward for companies who have kept full-time employees on payroll during the pandemic. Since government orders shaped much of what occurred as far as business restrictions, this is the government’s way of giving back to your business.

How do I qualify?
Many industries faced decline during the pandemic. If your company’s gross receipts were 50% lower in a certain quarter than they were in the same quarter of 2019, pre-Covid-19, your business qualifies to file for ERC. Since there have been several changes within the last year regarding Employee Retention Tax Credit, many businesses are disqualifying themselves based on rumors, when in reality, they could very well qualify.

If your business has faced any of the below during 2020 or 2021, you may qualify:

Full or partial shutdown
Significant decline in sales
Full or partial suspension in business
Supply chain or distribution interruption
Inability to access equipment
Interrupted operations
Reduction in operation hours
Reduction in customer & client interaction
Switching hours for sanitation reasons
Faced decrease in providing services

If your business belongs to one of the following industries, you could qualify for credits:

Education – colleges and universities
Non-Profit or tax-exempt organizations
Hospitality and Retail
Real Estate and Construction
Both essential and non-essential businesses are eligible for the payroll tax credit. All businesses were forced to adapt to safety restrictions and even face a partial shut down due to the pandemic. The Employee Retention Tax Credit (ERC) is the government’s way to give back to businesses and essentially reward them for keeping employees on payroll, even if these employees were forced not to work.

How does it work?
ERC is important because it can be responsible for increasing the chances of success for large organizations, small businesses and startups alike. If you are an eligible employer, filing for Employee Retention Credit can offset or eliminate payroll taxes and is currently one of the largest refunds businesses can get. Keep in mind that once filed, it can take up to nine months to receive your credit.

The statute of limitations for the ERC in 2020 and 2021 do not close until April 15, 2024 and April 15, 2025 respectfully. If your business is eligible for stimulus credit, you have until the deadlines to file. However, knowing the timeliness it can take to receive credits, it is wiser to file as soon as possible. You can file by reducing your payroll taxes sent to the Internal Revenue Service (IRS).

A common question around ERC is if it needs to be paid back. To answer, ERC does not have to be paid back as it is not a loan. However, you cannot take ERC into income when you receive it. You must instead reduce deductions for wages on your income tax return.

Did you know that 99% of businesses are small to medium sized companies? Smaller companies have different benefits of ERC than larger companies. Small employers can include wages paid by all employees while larger companies can only include those who were not performing work services.

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