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Employee Retention Tax Credit FAQ | What You Should Know For 2023

By July 13, 2022 January 11th, 2023 No Comments

Employee Retention Tax Credit FAQ What You Should Know

You retained staff despite the Coronavirus. You pushed your business through the lockdown and the ensuing economic downturn. Now, it’s time to claim your much-deserved Employee Retention Tax Credit. The question is… how?

Tax paperwork is confusing enough without all these additional credits, acts, and programs.

If you want to get paid through the Employee Retention Credit but can’t figure out how, we’re here to help.

We put together this guide to help answer some of your burning questions regarding the Employee Retention Tax Credit.

👉 See If You Qualify

Employee Retention Credit Frequently Asked Questions

1) ERC FAQ: What is the Employee Retention Credit?

The Employee Retention Tax Credit is a government tax credit created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Employee Retention Credit allows small and medium business owners to receive a tax break for employees they were able to keep on staff during the Coronavirus pandemic.

More specifically, employers eligible for the Employee Retention Credit can receive up to 50% of wages paid to their employees between the dates of March 13th 2020 and December 31st 2020 with a limit of $10,000 per employee.

The ERC was extended by the Relief Act of 2021 to 70% of an employee’s wages per calendar quarter per employee from January 1st 2021 until October 1st 2021, with a limit of $10,000 per employee per quarter.

Tip: Take this 60 second quiz to see if you qualify for the ERTC today!


2) ERC FAQ: Can you still get the Employee Retention Credit?

The Employee Retention Credit is still available to be claimed, as long as you retained employees and are fully qualified. However, since the window of the ERC ended, the credit can only be claimed retroactively. To receive the ERC, you’ll need to fill out Form 941-X, the Adjusted Employer’s Quarterly Federal Tax Return, which allows you to retroactively claim the ERC. This applies to businesses that received PPP (Paycheck Protection Program) loans and those that did not.

You have a three-year deadline from the date of the original filing for which you’re hoping to get a retroactive refund.

ERC FAQ Can you still get the Employee Retention Credit


3) ERC FAQ: How do I know if my company qualifies for the Employee Retention Credit?

To qualify for the Employee Retention Credit, your business must fall into one of the following categories:

  • A disruption in business operations beginning after February 15, 2020 and continued due to the coronavirus pandemic. This includes businesses that are fully or partially suspended by government orders or are unable to operate at normal capacity due to the pandemic.

or

  • A revenue decline. Your eligibility is largely based on your 2019 records. First, your business must have 500 or fewer employees in 2019 to qualify. Also, your company’s quarterly gross receipts in 2020 and 2021 must be at least 20% lower than the corresponding quarter in 2019. This is to prove your company was financially impacted by the Coronavirus lockdown.

On top of that, you must be a private sector or tax-exempt company that dealt with a partial or full shutdown of operations due to COVID-19.

You do not need a revenue decline to qualify, in fact, many businesses had a revenue increase and still qualified that experienced a disruption in business operations.

👉 See If You Qualify


4) ERC FAQ: One of the qualifications for the Employee Retention Credit is a “disruption in business operations”. What is considered a “disruption”?

The IRS says to qualify for the ERC your business needs to have experienced “a full or partial suspension of operations due to government order due to COVID-19”. This can mean the complete shuttering of your business, reduced hours, a change in your business offerings, a drop in customers due to the lockdown, and more.

Most businesses experienced a COVID-19 event. If you experienced even one of the COVID-19 examples below (or a similar event) during a quarter in 2020 or 2021, your business qualifies for that quarter:

  • Change in business hours
  • Partial or full suspension of your operations
  • Shutdowns of your supply chain or vendors
  • Reduction in services offered
  • Reduction in workforce or employee workloads
  • A disruption in your business (division or department closures)
  • Inability to visit a client’s job site
  • Suppliers were unable to make deliveries of critical goods or materials
  • Additional spacing requirements for employees and customers due to social distancing
  • Change in job roles/functions
  • Tasks or work that couldn’t be done from home or while transitioning to remote work conditions
  • Lack of travel
  • Lack of group meetings

Companies that retained employees despite this disruption can benefit from the ERC. We recommend talking with ERC Assistant to see if you qualify.


5) ERC FAQ: What industries qualify for ERC?

Many industries can qualify for ERC—the most important thing is that your company meets the qualifications listed above, not that they are in the proper industry or sector.

Some industries that qualify for ERC include education, government contractors, healthcare, life science, hospitality, retail, non-profit, industrial, real estate, construction, technology, and more.

Self-employed individuals do not qualify for ERC. However, industries, where employees were retained due to their ability to work from home, are eligible.


6) ERC FAQ: Can you qualify for both the Paycheck Protection Program (PPP) and Employee Retention Program (ERC)?

Yes, you can qualify for the Employee Retention Program (ERC) even if you’ve already received a Small Business Interruption Loan under the Paycheck Protection Program (PPP). It is also possible to only benefit from one or the other, and not receiving a PPP loan will not impact your ability to receive the ERC tax credit. SnackNation even outlines the differences in their guide to ERC vs PPP.

However, the credits from the Employee Retention Program can only be used on wages that were not forgiven by the PPP—if the PPP already covered it, they are not eligible for the tax credit.

ERC FAQ Can you qualify for both the PPP and ERC


7) ERC FAQ: What is the difference between PPP and ERC?

The PPP and ERC have the same goal—to support and help businesses that kept their employees during the Covid-19 shutdown. However, they go about it in different ways, with the money received at very different times.

The PPP stands for the Paycheck Protection Program. It is a Small Business Association-backed loan that helped workforces maintain their employees during the economic downturn of the Covid-19 shutdown. The PPP offers first loans, second loans and the potential for loan forgiveness.

These PPP loans are issued by private lenders or credit unions, although the backing of the SBA means, that as long as the loans are used correctly, the entire loan payment can be forgiven.

The ERC is a tax credit. This means it is not a loan and does not have to be paid back. Instead, a tax credit reduces your final tax bill, saving you money (or possibly making you money back with your tax refund) when tax season rolls around.


8) ERC FAQ: Are Employee Retention Credits taxable?

The ERC is not taxable income. You won’t need to pay any of your tax credit back once it is received, assuming you follow all the rules and regulations.

However, the ERC will impact your income tax return. Any employer tax credits will result in a reduction in wages that matches the amount of the credit. The impact of this credit needs to be reflected in the year it was received. So, if the reduction was for 2021, your 2021 tax return must reflect these post-credit wages.

Tip: Take this 60 second quiz to see if you qualify for the ERTC today!


9) ERC FAQ: How is the Employee Retention Credit calculated?

For 2021 wages, the Employee Retention Credit can pay you 70% of a single employee’s wages with a quarterly cap of $10,000. For a simple retention credit example, let’s say you have ten employees who make exactly $10,000 a quarter. That means you’d get $7,000 per employee per quarter for a total of $70,000 across all your employees per quarter and $280,000 for the entire year.

For 2020 wages, the Employee Retention Credit can pay you 70% of a single employee’s wages with a yearly cap of $10,000. For the same company of ten employees, you’d make $5,000 per employee for a total of $50,000. These are some ranges of ERC awards being granted by the IRS:

# of Employees ERC Award (Low) ERC Award (High)
5 $25,000 $130,000
10 $50,000 $260,000
15 $75,000 $390,000
20 $100,000 $520,000
25 $125,000 $650,000
30 $150,000 $780,000
40 $200,000 $1,040,000
50 $250,000 $1,300,000
75 $375,000 $1,950,000
100 $500,000 $2,600,000
150 $750,000 $3,900,000
200 $1,000,000 $5,200,000
300 $1,500,000 $7,800,000
400 $2,000,000 $10,400,000
500 $2,500,000 $13,000,000

*Important Note: This table serves as a broad estimate for an ERTC calculation. This is not a guarantee. Every business is different. Speak to an ERC Expert to fully understand your qualification status and to estimate how much your award might be.


10) ERC FAQ: How do I claim employee retention credit on Form 941?

Since the tax credit can now only be claimed retroactively (since the window for ERC ended after the 3rd quarter of 2021), the only way to claim the credit is with tax Form 941-X, the Adjusted Employer’s Quarterly Federal Tax Return. This form amends your former payroll tax return and changes your formerly submitted information to now include the ERC.

The 941-X form is available on the IRS website. The form leads you through the different information you need to provide. Be ready to report all relevant wages and income tax to receive the ERC. The form is long and complex, so be sure to give yourself plenty of time to fill it out and ensure the information is correct to avoid an ERC scam—there’s a lot of money on the line, after all.

👉 See If You Qualify


11) ERC FAQ: When does employee retention credit expire?

The employee retention credit was meant to last until January 1st 2022, but ended early with the signing of the Infrastructure Investment and Jobs Act of November 15th, 2021. Due to this, the ERC period ended retroactively at the start of October of 2021 for all businesses except recovery startup businesses.

While the period covered by the ERC is over, it is not too late to retroactively receive your tax credit. You have three years after your initial tax filing to fill out Form 941-X. So, for those trying to claim their 2020 ERC, which they likely would have filed in early 2021 as part of their 2020 taxes, they have until the same date in 2024.

ERC FAQ


12) ERC FAQ: Is the employee retention credit 50% or 70% of qualified wages?

The answer is, confusingly, both. It all depends on which year you’re trying to receive the Employee Retention Credit. The ERC was started in the CARES Act of March 2020. This gave employers 50% of employee wages for the year, with a cap of $10,000 in wages.

However, the ERC was expanded by the Relief Act of 2021 and expanded again by the American Rescue Plan Act of 2021. This expansion not only extended the availability of ERC, but also added to it. For 2021 wages, business owners could claim 70% of wages per quarter with a cap of $10,000 per employee.

So, the credit is 50% of yearly wages per employee for 2020  and 70% of quarterly wages per employee for 2021.

Tip: Take this 60 second quiz to see if you qualify for the ERTC today!


13) ERC FAQ: Will ERC be extended?

Unfortunately, it does not seem likely that the employee retention credit will be extended. The ERC was already extended twice, once by the Relief Act of 2021 and again by the American Rescue Plan Act of 2021

With the passing of the Infrastructure Investment and Jobs Act (IIJA) in November of 2021, the ERC retroactively ended on October 1st of 2021. While you can still claim the tax credit you’re eligible for from January 1st 2020 through October 1st 2021, it is unlikely there’ll be future financial quarters where the ERC is offered.


14) ERC FAQ: How long does it take to get the Employee Retention Credit?

According to the IRS, you can expect reimbursement between six and ten months after you filed your 941-X form. However, current filers report that reimbursement can be as soon as ONE month with an average of three to five in 2022.

👉 See If You Qualify

 

Conclusion

Hopefully, all your questions about the Employee Retention Credit have been answered above. The Employee Retention Credit is a great way to incentive and reward businesses who kept the economy moving during the COVID-19 shutdown. See if you qualify today!

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