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. Read these common FAQs about the Employee Retention Credit to learn how you may qualify!
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.
1) What is the Employee Retention Credit?
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.
2) How do I know if my business qualifies for the ERC?
If your business experienced any of the following, you may be eligible to claim ERC:
- Business interruptions like reduced services, supply chain, reduced hours of operation, limited capacity, etc.
- Full or partial shutdowns due to governmental orders related to COVID-19; OR
- On or after march 13, 2020, significant decline in gross receipts (50%+ decline for 2020 or 20%+ decline for 2021) compared with the employer’s 2019 gross receipts for the same quarter.
3) How can I claim the ERC for my business?
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.
4) How much credit can I claim per employee?
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 $7,000 per employee quarterly for the first 3 quarters (maximum of $21,000 per employee in 2021).
5) Can I still claim the ERC is my business received a PPP loan?
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.
6) Is there a deadline to claim the ERC?
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. The last opportunity to amend your filings to claim the ERC are April 15th, 2024 for all calendar quarters in 2020, and April 15th, 2025 for all calendar quarters in 2021.
I’m ready to claim ERC for my business! What’s next?
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!
Why choose Leyton?
- Our experienced professionals have helped numerous companies across many industries save money on taxes and are dedicated to providing you world class service.
- Our professionals have extensive experience preparing tax credit claims, substantiating those claims, and defending those claims in the case of an audit.
- There is no upfront cost to you! Our fees are a percentage of the benefit that we find for you!
If you still have questions about ERC, please refer to the IRS FAQs here.
About Leyton:
Founded in 1997, Leyton is a global innovation funding consultancy dedicated to helping our clients improve their business performance. We are proud to serve over 26,000 clients in 12 countries. As a business, we want to help unleash our clients potential and be a strategic partner in their evolution and growth.
