What is ERC?
ERC (Employee Retention Credit) is a stimulus government aid program established by the CARES Act. It is a refundable tax credit – a grant, not a loan – that businesses can claim, and can recoup up to $26,000 per employee.
Who is the ERC Program For?
This program was created for companies who showed a decline in revenue, changes or adjustments in standard business operations, or partial / full business suspension during the Covid-19 pandemic and paid employees on W2 payroll during the years of 2020 and 2021.
1 – Did the business employ W2 employees in 2020 or 2021?
2 – Did the business experience a decline in revenue during those years?
3 – Did the business experience a change in standard operations during those years? Some examples include:
- Change in business hours
- Partial or full suspension of your operations
- Shutdowns of your supply chain or vendors
- Reduction in services offered
- Reduction in workforce or employee workloads
- A disruption in your business (division or department closures)
- Inability to visit a client’s job site
- Suppliers were unable to make deliveries of critical goods or materials
- Additional spacing requirements for employees and customers due to social distancing
- Change in job roles/functions
- Tasks or work that couldn’t be done from home or while transitioning to remote work conditions
- Lack of Travel or Lack of Group Meetings
Is ERC like PPP?
No, The PPP is a loan program that provides funds to small businesses to help them keep their employees on the payroll. The ERC, on the other hand, is a tax credit that businesses can claim for eligible wages paid to employees during the pandemic and do not need to be repaid. Businesses who filed for PPP are also still eligible to receive ERC.
Important Facts to Know …………..
There are various factors than can affect the eligibility of ERC. Also, many businesses assume they do not qualify because of various assumptions. Here are some hard facts that will help:
- Even if companies received PPP, they still qualify for ERC.
- Even if your business did not have a revenue reduction or was deemed essential, they still qualify for ERC
- ERC is a refund in the form of a grant and can return up to $26,000/employee ($10,000 is the average for companies that received PPP, $20,000 is the average for businesses that didn’t)
- Simple operational impacts can qualify a business for ERC as well such as change in: job roles, business hours, reduction in services or workforce
- This stimulus program was established by the CARES Act, it is a refundable tax credit – a grant, not a loan – that your business can claim. The program is based on qualified wages and healthcare paid to employees.
- Businesses have until April 2024 to claim ERC retroactively for 2020, and until April 2025 to claim ERC retroactively for 2021. They have the ability to do a look back on their payroll during the pandemic and retroactively claim the credit by filing an amended tax return.
- For tax year 2021, the refundable tax credit is: 70% of qualified wages paid per employee (up to a maximum amount of $7000 per employee, per quarter and up to $21,000 for the entire year)
- For tax year 2020, the refundable tax credit is: 50% of qualified wages paid per employee (up to a maximum amount of $5000 per employee for the entire year)
- Independent contractors (1099) and the compensation paid to these individuals are not eligible for ERC
- Typical turn-around times for funds to be collected from the ERC program is 3-6 months.
What about a Business's Existing CPA?
Many businesses will ask “Why don’t I just file ERC with my CPA?” – The truth is because of the complexity of the ERC stimulus program and its various changes over time, many CPA’s and standard accountants do not have the experience or know-how in understanding how the program works, whether a business is eligible or what qualifies a business, and how to file for ERC. With our ERC program via Bottom Line Concepts, they have perfected and streamlined this process and have a proven track record along with the resources to recovering the most funds as quickly as possible.
BOTTOMLINE CONCEPT’S ERC VIDEO PRESENTATION -
(3 min / 20 sec)
Basic qualifications to receive ERC funding
- Decline in gross revenue. Each quarter is independently measured against the comparable quarter in 2019
- 50% decline in 2020 (Q2,3,4)
- 20% decline in 2021 (Q1,2,3)
- Full or partial suspension of operations
- The second way to qualify is if your business experienced a full or partial suspension of operations. A partial suspension is defined by having to make modifications to the operations of a business due to government orders resulting in a “nominal effect” to the business operations.
- “Nominal Effect” – IRS Notice 2021-20 – Page 39 (https://www.irs.gov/pub/irs-drop/n-21-20.pdf?of_m=6488bb329c452b001c5abc91)
“The mere fact that an employer must make a modification to business operations due to a governmental order does not result in a partial suspension unless the modification has more than a nominal effect on the employer’s business operations. Whether a modification required by a governmental order has more than a nominal effect on the business operations is based on the facts and circumstances. A governmental order that results in a reduction in an employer’s ability to provide goods or services in the normal course of the employer’s business of not less than 10 percent will be deemed to have more than a nominal effect on the employer’s business operations.”
The considerations for determining the nominal effect are that you would be able to say yes to some of the bulleted items in the List of Covid Operational Impacts (see below). These are examples of disruptions, or modifications you may have made to the operation as a result of government orders.
ERC – Employee Retention Credit