For 2020, an eligible employer's gross receipts must have fallen by more than 50% in a quarter compared to the same quarter in 2019. For 2021, the decline in gross receipts must be more than 20% to qualify for the ERC.
WHAT IS THE ERC?
The Employee Retention Credit
Learn more about the payroll tax refund meant to help eligible businesses that kept employees on payroll during the pandemic.
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As a small to medium-sized business, it’s likely that you were negatively impacted by COVID-19, and you certainly weren’t alone.
Due to financial suffering across the country, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help get businesses back on their feet — with a special section called the Employee Retention Credit (ERC).
Time is running out!
The maximum value a business is able to claim starts to decrease in 2024 and gets smaller each quarter.
Qualifications and limitations have been amended multiple times, so don’t let your business miss its chance to make a claim. As more small businesses discover the ERC, the processing times may increase.
Get started today.
The ERC explained
The Employee Retention Credit (ERC) was developed to encourage and support employers who retained existing employees throughout 2020 and for the first three quarters of 2021 by offering a generous payroll tax refund through the IRS.
Eligible businesses can receive a refund of up to $5,000 per employee for all of 2020 and up to $7,000 per employee kept on the payroll for each quarter for Q1 through Q3 of 2021*. That could mean a substantial refund you can use to help your business however you see fit.
Designed to reward businesses
The program rewards those who kept employees on payroll in 2020 and 2021.
The ERC wasn’t widely used until recently
The ERC has since undergone expansions and multiple amendments by Congress.
Capital for any business need
The ERC refunds are most often received as a check from the US Treasury.
Established by the CARES Act
The same relief bill that created PPP loans also created the ERC.
* Your business could potentially receive up to $26,000 per employee under the legal maximum limit. However, the average refund amount is lower for most companies and depends on the accuracy of your payroll records, involvement in other relief programs, healthcare statements, owing back taxes, any deductions you may have previously taken, and other factors. These factors may also reduce the gross refund amounts, which may mean that net refund is lower.
Is my business eligible for the ERC?
Many small and medium-sized businesses may be eligible for ERC. However, due to misconceptions or outdated information, some business owners might not be leveraging this beneficial opportunity.
At Innovation Refunds, we acknowledge that navigating the intricacies of the ERC can be complex. This complexity is compounded by the fact that Congress has revised the qualifications and restrictions pertaining to the ERC multiple times since its introduction.
As the ERC is associated with your payroll rather than your business income tax returns, it necessitates a sequence of payroll tax filings. These filings might be beyond the usual scope of some CPAs.
We recommend collaborating with one of our independent tax professionals who are well-versed with the latest regulations. They can assist you in understanding the process and help your business claim the full amount of the ERC it qualifies for, in line with IRS guidelines.
Eligibility Requirements
1
You must be a “small business”
The government has defined a “small business” as:
Any employer that operates a trade, business, or a tax-exempt organization.
This was expanded for the ERC 2021 to include some governmental employers.
Having fewer than 100
full-time employees
(calculated from 2019) for the 2020 ERC refund.
Having fewer than 500
full-time employees
(calculated from 2019) for the 2021 ERC refund.
2
Your small business may be eligible for the ERC if it meets either of the following criteria:
A
OR
B
Had operations that were impacted by government orders due to COVID-19, resulting in limitations of commerce, travel or meetings.
If your business was impacted due to a government order that caused one or more of the following, you may qualify:
- Your business operations were interrupted.
- There were interruptions with your supply chain.
- There was an inability to access equipment.
- Your business had a limited capacity to operate.
- You were unable to work with your vendors.
- Your hours of operation were reduced.
- Your available services offered to customers were limited or reduced.
Even if your business and your tax advisor looked into the ERC before, we urge you to review it again.
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Check what your business may be eligible to receive, with no upfront costs
Your refund amount is based on many factors, including:
Qualifying quarters
Number of employees
Hours worked
Participation in other government programs
PPP loans*
Group health premiums
Wages paid
* Businesses that received the PPP loans can still qualify for the ERC. However, there is no "double-dipping." This means that you cannot claim the ERC on wages that were paid for with forgiven PPP loan funds.
How do I file?
Once you find out if your business qualifies, you’ll need to fill out the specific tax forms for 2020 and the applicable quarters of 2021.
How long it takes to receive your refund depends upon many factors. This is why it’s important to make sure that your forms are filled out without error. Incomplete or incorrectly filled out forms will be rejected, and may result in your business having to re-file.
The tax forms you will need, but may not be limited to:
- Quarterly IRS Form 941 (2019, 2020, 2021)
- Quarterly Profit and Loss Statement (2019, 2020, 2021)
- Monthly Payroll Ledger per employee to include: gross pay, hours worked, itemized deductions / itemized taxes & net pay (2020, 2021)
- Group Healthcare Statement per month (If applicable, 2020, 2021)
- PPP Form 3508 for both 1st and 2nd rounds (If applicable)
We recommend working with professionals who focus on ERC.
Getting your amended payroll tax returns prepared and filed by inexperienced providers could result in a reduced tax refund, rejected amended payroll tax returns, or the need to revise and refile your amended payroll tax returns, prolonging the process. Your tax provider needs to be up to date on all ERC-related legislation, so they may maximize the available ERC and avoid mistakes that could cost your business part (or even all) of the ERC tax refund.
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How can Innovation Refunds help?
To thoroughly assess eligibility, our independent tax professionals will review your operations and develop a narrative based on how COVID impacted your business.
If eligible, they’ll combine your COVID narrative with the gross receipts test, the full or partial suspension test, and help you gather the required documents to support the claim. We’re here to support you every step of the way.
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Our network of independent tax attorneys and tax professionals aim to uncover your business' ERC refund.
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