What Is Employee Retention Credit (ERC)? A Complete Guide

What Is Employee Retention Credit (ERC)? A Complete Guide

Did you know that you can collect up to $5,000 from the Employee Retention Credit (ERC)? The Internal Revenue Service (IRS) is offering this incentive to help keep employee retention rates up.

It's part of the business relief programs that the IRS puts together to help small businesses, S-Corps, LLCs, and 1099 employees sustain their finances.

To learn more about ERC relief, keep reading.

What Is the Employee Retention Credit?

The Employee Retention Credit (ERC) is a tax credit that is available to businesses that were negatively affected by the COVID-19 pandemic. It is fully refundable and applied toward payroll taxes. The employee retention credit 2023 program is a business tax refund directly from the Internal Revenue Service (IRS)

You can find it on 941/941-X, which is a quarterly tax form.

The ERC applies to employers for wages through September 30th of 2021. To claim the ERC, you should file your 941-X within three years of the period you're eligible for.

Is My Business Eligible for ERC Relief?

There are two ways in which your business may be eligible for the ERC:

  1. Your business was either partially or completely suspected due to government limitations on commerce, travel, and group meetings secondary to the COVID-19 pandemic
  2. The business had a significant decline in gross receipts

To determine eligibility based on the second criteria, you have to look a little deeper at your company's financial situation.

The IRS defines a significant decline in revenue as either of the following cases:

  1. Your gross receipts during one of the 2020 calendar quarters were less than 50% compared to the same quarter during the 2019 calendar year
  2. Your gross receipts during one of the 2021 calendar quarters were less than 20% compared to the same quarter during the 2019 calendar year

Based on the amount that you lost during these times, you can receive your refundable tax credit equal to 50% of qualifying wages.

Is My Business Eligible for the Employee Retention Credit If It Got a Paycheck Protection Program Loan?

The Employee Retention Credit came out with the Coronavirus Aid, Relief, and Economic Security (CARES) Act. At that time, businesses that received Paycheck Protection Program (PPP) loans were not eligible for the ERC.

This changed with the enactment of the Consolidated Appropriations Act (CAA) in December 2020.

The CAA states that businesses who received PPP loans can claim the ERC retroactive to the 13th of March 2020 as long as these wages qualify for the ERC. These wages must also not be paid for with PPP loans.

You can check your PPP and ERC eligibility here:

You may be able to take advantage of one or both business relief programs.

Claim the ERC Tax Credit

To claim the Employee Retention Credit, eligible employers should report their qualifying wages with health insurance costs each quarter. Most employers will use Form 941 to report these amounts with their quarterly employment tax returns.

If you're interested in an ERC advance, you can submit Form 7200.

If you haven't claimed ERC relief yet, you should consider doing so. Check your eligibility and claim the ERC today.

To learn more about business relief programs, check out the rest of our blog.

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