There is so much talk about the ERC stimulus AKA the Employee Retention Credit. The ERC 2020 and 2021 tax credits are available now. We have talked to so many business owners that don't think they qualify, but do or haven't heard of this credit at all. Many of these businesses even have CPA's they are working with, but are just too busy to help.
In this article we are going to focus on the ERC tax credit that's for businesses that started operations PRIOR to Feb 15 2020. If you started after Feb 15th 2020, then click here to read about the Recovery Startup Credit.
Existing businesses had to navigate many different stimulus programs, the biggest being the PPP loans. By now you likely have gotten them forgiven or are working on your 2nd PPP loan forgiveness. Enter the employee retention credit?
What is the Employer Retention Credit?
In short the Employer Retention Credit (ERC) is a payroll related tax credit to help businesses that meet certain qualifications receive money back in from the IRS in the form of tax credits. It's available for both 2020 and 2021. You haven't missed out on anything if you haven't taken advantage of this yet.
Do you Qualify for the Employee Retention Credit (ERC)?
In order to qualify for the ERC you have to answer yes to at least 1 of the following.
1. Were you required to shut down as a result of your state's order?
2. Did you have a loss in revenue of 50% or more in any quarter in 2020 compared to the same quarter in 2019? We have found that many businesses in Q2 2020 were hit so hard that they met the 50% revenue loss and qualified. Maybe not every quarter but if you qualify in one then you will qualify for some credits.
3. Did you have a loss in revenue of more than 20% in any quarter in 2021 compared to the same quarter in 2019? This is a little easier to meet since your revenue would only have to be down 20% compared to 2019. It doesn't matter the reason your revenue was down. Meaning you don't have to prove that is was due to Covid, just that your revenue was down compared to 2019 in order to qualify.
If you answered yes to any of the questions above, then you qualify. Since this is a payroll tax credit you also must have employees on payroll other than the owner or their family. Independent contractors and family members don’t count.
How much is the ERC tax credit?
If you maxed out the credit then you could get up to $26,000 per employee. If you have 10 employees that’s $260,000. That’s definitely a credit you don’t want to miss out on. Let’s break down the ERC credit for 2020 and 2021.
2020 ERC Tax Credit
The total credit you can get in 2020 is $5,000 per employee.
First you determine which quarter or timeframe you qualify for. Then you can take those wages to be used toward the credit for a max of $10,000 per employee. The credit itself is 50% of the qualified wages/ benefits so $10,000 * 50% = $5,000. Even if you qualified for 3 quarters, you can only get a max of $5,000 ERC tax credit per employee for 2020.
2021 ERC Tax Credit
The total credit you can get in 2021 is $21,000 per employee.
First you determine which quarter(s) you qualify for. Then you can take those wages to be used toward the credit for a max of $10,000 per employee per quarter. The credit in 2021 is 70% of the qualified wages/ benefits so $10,000 * 70% = $7,000. Another big difference is in 2021 you can qualify for EACH quarter.
If you qualify for all 3 quarters (Q1, Q2, and Q3) then you can get up to $28,000 ($7,000 * 4) for the year per employee. The infrastructure bill just closed off 4th quarter 2021 to redirect those funds.
One issue you need to be aware of is you can’t double dip your PPP funds and ERC credit. So that means if your payroll was $200,000 for 1 quarter and you used $150,000 of that payroll to get your $150,000 PPP loan forgiven, then you only have $50,000 ($200k - $150k) available for that quarter to put toward the ERC credit. If you got 2 PPP loans then the same applies for each. We can help you navigate the PPP and ERC together. Just because you got a PPP loan doesn't stop you from getting the ERC credits.
If you think you qualify based on the above or think you might Book a Time Today and let us get that credit back for you.
Other Frequently Asked Questions
1. Do I have to pay it back?
No you don’t have to pay it back as this is a tax credit.
2. How much is the ERC tax credit?
If you qualified for 2020 and 2021 the total you can get is $26,000 per employee.
In 2020 you are capped at $5,000 per employee. In 2021 you are capped at $7,000 per employee per quarter (Q1, Q2, Q3). If you have 10 employees and qualified each quarter that’s $260,000.
The infrastructure bill just closed off 4th quarter 2021 to redirect those funds.
3. Is it taxable?
Yes is the short answer. The long answer is your payroll expenses will be reduced as a result of the tax credit. Any time expenses are reduced your taxable profit will increase. If your payroll is $200,000 and you get $75,000 credit, then your payroll tax deduction is lowered to $125,000. We can help you navigate the tax consequences for your business.
4. How do I apply for this?
Contact us today and we can help you apply and get the maximum ERC tax credit.
- Book a Time
- Call or Text us at 813-252-0829
5. What info will you need to apply?
- Date of when business started operations
- Access to your financials (Profit and Loss / Balance Sheet)
- Latest Business Tax Return Filed
- Payroll Detail by Employee per quarter
- PPP forgiveness Application or PPP dates
6. If I'm a 1 owner S-Corp and I’m on payroll do I qualify?
Based on info that the IRS has recently put out, business owner wages and family members of owners don’t count.
7. We are in 2021. Can I still go back and claim the credit for 2020.
Yes, we can help you go back and claim your credits for 2020 and current credits for 2021.
Don't miss out on the ERC stimulus that is available right now. If you don't know if you qualify then click here to answer a few questions for us and we will help you determine if you do. You can also call or text us today at 813-252-0829 or just simply book a time on our calendar.