Your Business and the Employee Retention Tax Credit

Has your business been financially impacted by the COVID-19 pandemic?

Good news! You may now be eligible for Employee Retention Credits (ERC) of up to $26,000 per employee.

Did you know? The ERC program was created under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) as part of the federal government’s relief program to encourage and reward business owners that retain employees during the COVID-19 pandemic. Recently the policy was amended to enable business owners to qualify for ERC tax credits even if they received PPP loans. The time period the program covers was also extended from March 22, 2020 to September 30, 2021.

Does My Business Qualify for ERC Credits?

There are three different ways that your business can be eligible for ERC:

  1. Revenue Reduction: Your business experienced a significant reduction in revenue during any quarter of 2020 or 2021 as compared to 2019.
    • 2020 – 50 percent decrease in revenue/quarter
    • 2021 – 20 percent decrease in revenue/quarter
  2. Supply Chain Disruption: Your business experienced an interruption of supply items due to supply chain issues caused by government orders. This qualification must have resulted from a government suspension order to your supplier that resulted in the supplier not being able to deliver critical goods, but may continue beyond the original suspension order.
    • The disruption must have resulted in a more than 10% impact on your business.
    • This can be directly from the reduction of sales from the inability to procure the supply item, or from the impact not being able to procure the item had on your business.
    • The business must not have been able to find a reasonable replacement supplier for the supply item affected by the government suspension order.
  3. Partial or Full Suspension: Your business operations were partially or fully suspended due to a COVID-19 governmental order. Keep in mind, a government restriction may have had a direct impact on your operations even though that shutdown order wasn’t given to you directly
    • Social distancing requirements that reduced capacity
    • Reduction of hours of operation
    • Reduction in services offered
    • Suspended onsite work or client meetings
    • Inability to access equipment

Small Businesses Are Eligible for ERC Credits

The ERC is meant for small businesses, not large corporations. The threshold of employees to be considered a small business increased from 100 employees to 500 to qualify for the ERC. A full-time employee is classified as someone that worked at least 30 hours per week, or 130 hours per month in 2019. Businesses with over 100, but under 500 FT employees in 2019 do not qualify for ERC funds in 2020. Businesses with over 500 FT employees in 2019 do not qualify for the ERC program, except for actual wages paid to employees that did not work due to a government shutdown.

2020 ERC Tax Credits Eligibility

If your business meets one of the three requirements listed above you are qualified for the ERC tax credit equal to 50% of eligible employee wages and healthcare costs.

Your Maximum Credit = $5,000 per employee

2021 ERC Tax Credits Eligibility

In 2021, the rules were amended and businesses were offered relief even for companies that have already received the PPP and/or the EIDL. The ERC tax credit is equal to 70% of eligible employee wages and healthcare costs.

Your Maximum Credit = $21,000 per employee

Businesses that qualify for both 2020 and 2021 ERC tax credits may receive up to $26,000 per eligible employee. The funds will be paid to employers as a refundable tax credit for retaining employees during the pandemic. At ERC Specialists, we’re the payroll management and tax experts. Our goal is to help you navigate the ERC process and collect the tax credits you deserve. Our team of dedicated professionals will enable you to get the maximum ERC funding available to you.