The Employee Retention Credit (ERC) has been one of the most lucrative opportunities available to many US businesses that have been financially impacted by COVID-19. Due to various updates and changes to the legislation, there remain many misconceptions about business eligibility, which has resulted in an underutilization of this tax credit.
If your business was impacted by COVID-19 shut downs including governmental mandatory shutdowns or significant decline in gross receipts and you’re unsure whether you qualify to claim this tax credit, you’re at the right place! After speaking with hundreds of clients, our tax team has answered 6 frequently asked questions that can help provide clarity to business owners.
The ERC was passed as a part of the COVID-19 economic relief legislation created under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), expanded under the Consolidated Appropriations Act, and then further modified under the American Rescue Plan Act of 2021.
As its name suggests, ERC encourages business owners to keep employees on their payroll during the pandemic. This tax credit can mean significant tax savings for small to medium sized businesses as they head towards financial recovery.
If your business experienced any of the following, you may be eligible to claim ERC:
Under the ERC, an eligible employer may claim a payroll tax credit to offset the employer’s share of Social Security taxes. Since it is a refundable tax credit, if the amount of the credit is greater than your share of Social Security taxes, then the difference is refunded in cash. This credit is applicable for tax periods from March 13, 2020 through June 30, 2021.
For the last two quarters of 2021 (July 1, 2021 through September 30, 2021), an eligible employer may claim a payroll tax credit to offset the employer’s share of Medicare taxes as opposed to Social Security taxes.
According to the IRS, the ERC equals 50% of qualified wages paid to an employee in a quarter up to $10,000 of eligible qualified wages per employee, so employers may claim up to $5,000 per employee for all of the eligible 2020 period, from 3/13/20-12/31/20
Due to legislation updates in 2021, employers may claim up to $6,500 per employee quarterly for the first 3 quarters (maximum of $26,000 per employee in 2021).
Even if your business received a Paycheck Protection Program (“PPP”) loan that is forgiven, you may still be eligible to claim the ERC. An eligible employer can use the qualified wages of its employees to claim the ERC but cannot count those same wages if they were used to pay payroll costs from the PPP loan.
The ERC is only available temporarily. If your business qualifies, we recommend claiming it as soon as possible! As a result of recent expansions and modifications to the legislation, eligible businesses may be able to claim the ERC as a refundable employment tax credit from March 13, 2020 through December 31, 2021.
Leyton dedicates a staff of tax professionals to make sure your claim is compliant with all new IRS guidance. Schedule a free consultation with our tax team today!
If you still have questions about ERC, please refer to the IRS FAQs here.
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