Common ERC questions
The Employee Retention Credit is a significant tax incentive designed to support businesses during challenging times. It provides financial relief to eligible employers who have been impacted by the COVID-19 pandemic or experienced significant reductions in revenue. By understanding and utilizing this credit, you can retain your valued employees while simultaneously boosting your financial stability.
The St. Louis-based accountants at Volpe have spent the last few years mastering the process of filing successful Employee Retention Credit applications. During this time, we have compiled some of the most Frequently Asked Questions relating to the ERC.
How do I apply for the Employee Retention Credit?
According to the IRS website, “In order to claim the new Employee Retention Credit, eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns, which will be Form 941 for most employers, beginning with the second quarter. The credit is taken against the employer’s share of Social Security tax but the excess is refundable under normal procedures.”
Source: IRS Website
What are the qualification requirements for the ERC?
To qualify in 2020, your business needed to have been fully or partially shut down due to government mandate at any time in 2020. Or the business’ gross sales in any quarter of 2020 decreased by 50% or higher relative to the same quarter of 2019.
To qualify in 2021, ERC eligibility extends to businesses and tax-exempt organizations with W-2 employees that experience a significant decline in gross receipts. Gross sales must have declined by at least 20%.
Source: United States Treasury Department
Can employers who received PPP loans still qualify for ERC?
Yes, employers who received PPP loans can qualify for ERC, but not for the same wages.
Source: Yahoo Finance
How is the Employee Retention Credit calculated?
Eligible employers can claim a credit of up to 70% of qualified wages paid to each employee, with a maximum credit of $7,000 per employee per quarter. Qualified wages include both cash compensation and certain benefits.
Source: IRS Website
Has the ERC been extended?
While initially introduced as a response to the pandemic, ERC has been extended beyond its original expiration date. This extension allows businesses to continue benefiting from the credit as they navigate the challenges of the evolving business landscape.
Can I receive my credit before my quarterly tax returns?
One of the remarkable aspects of ERC is that it's both refundable and advanceable. This means that eligible employers can access the credit before filing their quarterly employment tax returns.
Are there any limitations to the Employee Retention Credit?
Certain limitations apply to the ERC. For example, employers can't claim the ERC on wages that were reported as payroll costs for Paycheck Protection Program loan forgiveness. Qualified wages for purposes of the ERC do not include payroll costs in connection with shuttered venue operators grants or restaurant revitalization grants.
Source: IRS Coronavirus Page
