Help With Employee Retention Tax Credit (ERC) Applications and Calculations

The Employee Retention Tax Credit (ERC tax credit) is a type of grant that Congress authorized for businesses that were impacted by the COVID-19 pandemic.

The ERC didn’t apply to many businesses when it first rolled-out. But under new rules, many businesses that were impacted by COVID-19 are entitled to tens, or even hundreds of thousands of dollars in COVID-19 relief funds – over and above any Paycheck Protection Program (PPP) or Economic Injury Disaster (EIDL) loans they might have already received. It’s a huge opportunity for businesses to recover losses incurred due to the pandemic.

What Does The ERC Tax Credit Mean For Your Business?

The ERC is what’s known as a “refundable” tax credit calculated based on the wages you paid employees. It’s called a tax credit, but think of it more like a rebate on your payroll costs. The government will pay you back up to 50% – 70% of your payroll.

If your business qualifies for the ERC tax credit, you could receive as much as $26,000 per employee and this money does not have to be paid back. Additionally, there are no rules for how it’s spent.

How Does Your Business Qualify For The ERC Tax Credit from the IRS?

Any employer that meets one of the following three conditions is a potential candidate for the ERC tax credit:

  1. The business was fully or partially suspended due to a government order, with a more than nominal impact on the business.
  2. The business experienced a significant decline in gross receipts for any one quarter in 2020 or 2021, compared to that same quarter of 2019.
  3. The business was started/opened after February 15th, 2020, and has an annual revenue of less than $1 million.

Remember – the business must meet only one of the three tests to qualify for the credit. For example, about every sit-down restaurant would qualify for the credit under the first test since their indoor dining capacity was limited (which counts as a partial shutdown) by a government order throughout the pandemic in practically every state in the nation.

This means that since they meet the first test, they don’t have to worry about meeting the other two. Even if sales are up and better than before, they would still get the credit.

How Is The ERC Tax Credit Calculated?

The credit is calculated based on applying the rebate rate (50% – 70%) to the “qualified wages” the business paid out in 2020 and 2021. The exact rebate percentage depends on the year of the quarter in which you are claiming the credit.

ERC Tax Credit Calculations Can Be Complicated

Your business cannot claim the ERC for wages that were relied on to obtain PPP forgiveness. ERC applicants must analyze multiple sets of data to ensure accuracy and proper wage allocations, to achieve the goal.

The goal is for your business to obtain the greatest ERC refund possible, while also retaining 100% of your PPP loan forgiveness. It’s the most important part of the process and needs to be done carefully and correctly.

Regardless of the complicated analysis and calculations, this is a huge opportunity for businesses to recover losses they suffered, and are still suffering, due to COVID-19.

While certain Covid relief programs have ended, the ERC program is still ongoing, and your business deserves the opportunity for recovery.