Businesses across the globe are grappling with the economic repercussions of the COVID-19 pandemic. To provide support to affected businesses, the government introduced  Employee Retention Credit (ERC), a tax credit that is part of the CARES Act passed in 2020. However, despite its potential benefits, a significant number of small businesses are not taking advantage of this valuable opportunity.

This lack of participation is due to small business owners being unaware of or having limited knowledge about ERC, resulting in unclaimed billions of dollars. The IRS estimated that around 70% to 80% of small and medium businesses, as well as charities, were eligible for the program. However, the actual number of businesses and charities applying  for the tax credit is lower than anticipated.

To help small businesses better understand how they can receive support from ERC, keep reading to take a look at the eligibility criteria and what potential benefits businesses stand to gain by participating in this program.

Is My Business Eligible for Employee Retention Credit?¹

To be eligible for ERC, businesses must meet certain criteria. The credit is available to eligible employers who have paid qualified wages to some or all employees between March 12, 2020, and January 1, 2022.² The eligibility and credit amount may vary based on when the business experienced the impacts. It's important to note that the ERC is not available to individuals; it is specifically for businesses and tax-exempt organizations.

For eligible employers to claim ERC, they must have paid qualified wages to their employees. It's important to carefully review the eligibility requirements and consult with a tax professional or refer to the IRS guidelines to determine if your business qualifies for the credit.

Once determined eligible, employers can claim ERC on either an original or adjusted employment tax return for a period falling within the specified dates. Be sure to accurately complete the necessary forms and follow the guidelines provided by the IRS to ensure a smooth and successful claim for ERC.

What are the Requirements for Employee Retention Credit?

In general, businesses and tax-exempt organizations that qualify for the ERC are those that fall into one of the following categories:

• The business experienced a partial or complete suspension of operations. This includes:

• The business experienced a significant reduction in revenue during any quarter of 2020 or 2021 as compared to 2019

PPP loan recipients are now eligible for ERC. Initially, under the CARES Act of 2020, businesses were not able to qualify for ERC if they had already received a Paycheck Protection Program (PPP) Loan. With new legislation in 2021, employers are now eligible for both programs. ERC, though, cannot apply to the same wages as the ones for PPP.³

How Much Money Could My Business be Entitled to?

Businesses can receive tax credits and refunds based on eligible wages paid to employees. For 2020, businesses could receive up to $5,000 per employee and for 2021, up to $21,000 per employee in the form of a refundable tax credit. That's a total of $26,000 per employee. ¹

This financial relief can help alleviate some of the burdens and uncertainties businesses face. ERC stands out due to its flexibility and potential for substantial tax savings.

How do I Apply?

Understanding the ERC eligibility criteria, requirements, and benefits is crucial for businesses seeking financial assistance. By familiarizing themselves with ERC, businesses can determine their eligibility, assess the relief they can receive, and make informed decisions to support their employees, all while helping ensure their long-term viability.

Ready to apply? Click here to apply or contact our ERC Specialists at cnb@ercadvisorsusa.com.

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¹ Subject to program eligibility requirements. Source: https://www.irs.gov/newsroom/employee-retention-credit-2020-vs-2021-comparison-chart, as of 07/20/2023. For more information on credit maximums, refer to the Credit Maximums section on the ERC 2020 vs 2021 comparison chart.

² Subject to program eligibility requirements. The deadline to apply and claim the Employee Retention Credit (ERC) for eligible quarters in 2020 is April 15, 2024. The deadline to apply and claim the ERC for eligible quarters in 2021 is April 15th, 2025.   Source:  https://www.irs.gov/coronavirus/frequently-asked-questions-about-the-employee-retention-credit , as of 07/20/2023.

³ Subject to program eligibility requirements. Certain limitations apply to the ERC. For example, employers can't claim the ERC on wages that were reported as payroll costs for Paycheck Protection Program loan forgiveness. Qualified wages for purposes of the ERC do not include payroll costs in connection with shuttered venue operators grants or restaurant revitalization grants. Source: https://www.irs.gov/newsroom/irs-provides-guidance-for-employers-claiming-the-employee-retention-credit-for-2020-including-eligibility-rules-for-ppp-borrowers, as of 07/20/2023.

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Please note: The content in this article comes from individual opinions and experiences. The content should not be taken as advice coming from City National Bank of Florida. City National Bank of Florida does not offer tax, legal or accounting advice.

Sources: 

IRS

Forbes

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