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Employee Retention Credit
Employee Retention Credit
Though we are gradually healing from the COVID-19 pandemic, the reality, however, is that a lot of businesses, families, and companies were affected economically during the pandemic lockdown. To ameliorate the situation, the government of the United States of America came up with the Employee Retention Credit (ERC) program.
ERC was introduced under the CARES Act during the COVID-19 pandemic. The tax credit is aimed at providing incentives or relief measures for small businesses and companies that have been impacted economically by the COVID-19 lockdown.
The ERC has been expanded and modified since its introduction. Many people are unclear whether they are eligible, the amount they could claim, and if the program is still on. Read on as this article will provide answers to all your uncertainties.
What is Employee Retention Credit?
Businesses, whether on a large scale or small scale, were relatively affected by the COVID-19 pandemic lockdown. It became a difficult task for many employers to pay their employees wages and other financial obligations. Therefore, to encourage businesses to retain their employees on payroll during the duration affected by the pandemic, the U.S Congress created the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act (CARES ACT).
When the program was newly introduced, the qualified employer could only get 50% of the wages paid and a maximum amount of $10,000 per employee from March to December 2020. This means the maximum amount any employer can receive under the program is $5,000. The program was reviewed in 2021 and the percentage of wages was increased from 50% to 70%. The maximum amount was also increased from $10,000 annually to quarterly. Moreover, the program has different rules for different employers, depending on the number of employees on the payroll and some other conditions.
However, in November 2021, President Joe Biden signed the Infrastructure Investment and Jobs Act (IIJA). This new legislation retroactively made it difficult for employers to claim ERC for any wages paid after September 30, 2021. While the credit is no longer available from December 2021, employers can claim ERC for the period it covered, provided such an employer has not been paid before and has fulfilled all the eligibility criteria.
Who is eligible for the Employee Retention Credit?
The ERC program is still retroactively available for businesses irrespective of size but there is a guideline for who is eligible for the credit claim. Here are some of the eligibility criteria.
- ERC is open to any employer in the private sector or other tax-exempt organizations that can prove that their business was negatively impacted due to the COVID-19 pandemic with a reduction in gross receipts.
- The business was partially or suspended during lockdown due to directives from the appropriate authority. This is, however, limited by the inability to travel, hold meetings, and commerce. Your business might be qualified for one quarter and fails to qualify for the next quarter.
- Any employer that paid wages to the employees from March 12, 2020, to December 31, 2021, despite the significant drop in gross receipts due to the pandemic.
How do I calculate the Employee Retention Credit?
The percentage of claims under the ERC has been upwardly reviewed from 50% of the qualifying wage to 70%, quarterly up to $10,000 per employee. This implies that each employer under this program can claim a maximum of $7,000 quarterly on the wages of each employee. You can still claim the credit retroactively, provided you are qualified.
Why do you need us?
An eligible employer can claim ERC but there is a process that must be followed. Moreover, government legislation, at times, might be complicated and any error in it could lead to denial. You need the service of a professional to avoid some errors. Below are a few of the reasons why you should opt for Iron Tax.
We will determine your eligibility
ERC is not open to all employers. The CARES Act has also been reviewed, potentially limiting the number of qualified businesses. Iron Tax will show you if your business, whether small or large, qualifies you for the credit.
We will calculate the right amount you are qualified for
The number of employees in the organization and the time for the claim potentially determine the credit you will get. We will help you calculate the credit application for all qualified quarters.
Prepare a report for you
You might need a detailed report for your ERC. We will prepare the report that will substantiate the deserved credit per employee in your organization.
Navigate IRS requirements
There are some conditions such as the Paycheck Protection Program (PPP) and other credits that could affect your claim under the revised guidelines. We can help you navigate the Internal Revenue Service (IRS) compliance, thereby reducing the risk of being denied. However, you should note that any wages you paid through the PPP loan will not be counted as qualified wages for ERC.
When will the Employee Retention Credit end?
The Employee Retention Credit was initially scheduled to end on 31st December 2020. However, ERC was extended to run through until December 31st, 2021 when the President signed the Infrastructure Investment and Jobs Act (IIJA). It also reviewed the credit from 50% to 70%. You can still retroactively file for the credit if you are eligible.
Do I have to pay back the Employer Retention Credit?
One of the fears of many people is concerning how to pay back ERC just like the PPP. You should not worry about this because ERC is treated as a reimbursement from the government for still running your business despite the pandemic. It is not a loan that you will pay back. You can as well spend the money on anything you want.
Final thought
The CARES Act was introduced for employers whose businesses have been affected by the COVID-19 pandemic to pay wages. Though it has been discontinued from December 2021, employers can still file for the claim retroactively. Contact us for any support related to the ERC claim.