You have up to 3 years to file. The Employee Retention Credit (ERC) was not widely used until March 2021, when updated IRS regulations made this type of COVID-19 Relief more accessible. You can qualify for the ERC, even if you received a Paycheck Protection Program (PPP), by amending your Quarterly Form(s) 941.
| INDUSTRY | CLIENT CREDIT | TAX YEAR | SIZE (2020 W-2 COUNT) |
| Single-location steakhouse | $213,029.88 | 2020 | 56 |
| Temp staffing firm | $275,099.46 | 2020 | 326 |
| Hair salon | $107,792.22 | 2020 | 36 |
| Multi-location sandwich shop franchisee | $371,551.39 | 2020 | 312 |
| Single-location pizza parlor | $58,255.95 | 2020 | 26 |
| Toilet manufacturer | $252,104.88 | 2020 | 63 |
| Church | $30,782.22 | 2020 | 12 |
| Gym | $51,455.01 | 2020 | 16 |
| ESL school, Non-profit | $111,15.41 | 2020 | 25 |
| Four-location hotel | $620,416.7 | 2020 | 383 |
| Home healthcare staffing firm | $599,891.59 | 2020 | 195 |
| Nutrition products distributor | $1,152,330.98 | 2021 Q1 | 208 |
| General contractor | $364,283.71 | 2021 Q1 | 59 |
| Four-location restaurant | $528,340.66 | 2021 Q1/Q2 | 156 |
| Field examinations | $324,846.66 | 2021 Q1/Q2 | 30 |
| Marketing graphics | $50,954.46 | 2021 Q3 | 11 |
| Environmental engineer | $21,000 | 2021 Q1-Q3 | 2 |
The Employee Retention Credit is accessed by filing a 941-X Amended Quarterly Payroll Tax return. The IRS will accept these for up to three years after the initial filing, so the ability to participate in ERC program may continue into the end of 2024.
If you file for an ERC with us, the fee ranges between 5% and 15% depending on the size of the refund that you receive. The higher the refund the lower the fee. We will confirm the fee (it’s due AFTER refund is received from IRS) once the analysis is completed.
The CARES Act’s Employee Retention Credit is a fully refundable tax credit. For the 2020 program, the ERC is equal to 50% of qualified wages (including allocable qualified health plan expenses) that eligible employers pay their employees. This applies to wages paid after 3/12/2020 and before 1/1/2021. The maximum amount of wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an employee is $5,000.
For the 2021 program, the credit is increased to 70%, and the limit is $10,000 per quarter. This means the annual maximum for an employee is $28,000.
The tax credit offsets all withheld federal employment taxes including federal income tax withholding, Employer FICA and Medicare. Any excess credit will be refunded or advanced by the IRS.
Eligible Employers for the purposes of the Employee Retention Credit are those that carry on a trade or business during calendar years 2020/2021, including a tax-exempt organization, that either:
Qualified wages are compensation provided to employees during an eligible period. An eligible period is either:
a) the time during which the trade of business is fully or partially suspended by governmental order, or
b) for 2020, any calendar quarter during which gross receipts are 50% less than the amount received during the same quarter of 2019; for 2021, any calendar quarter during which gross receipts are 20% less than the same quarter of 2019
Like most economic development business tax incentive programs, the Employee Retention Credit has certain complexities that may impact receiving an accurate, optimized, and audit-ready number. It is important to fully document processes and procedures, organize your records, and avoid any risk areas in advance of a potential IRS audit of the claim, which may come years later.
The ERC has numerous issues such as Controlled Group criteria, documenting qualification methodology, coordination with PPP loans, allocating healthcare expenses to the appropriate time periods, etc. Your payroll company does not have all this information, and your CPA may not have the specific expertise to ask.
The ERC has numerous issues such as Controlled Group criteria, documenting qualification methodology, coordination with PPP loans, allocating healthcare expenses to the appropriate time periods, etc. Your payroll company does not have all this information, and your CPA may not have the specific expertise to ask.
The operation of a trade or business may be partially suspended if an appropriate governmental authority imposes restrictions upon the business operations by limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes). This can be a “Stay at Home Order” for non-essential businesses, a capacity restriction, or other possibilities.
Perhaps the most complicated aspect of the ERC program, separate businesses under common ownership that meet IRS Controlled Group criteria must be evaluated together for eligibility. If the tests are passed, all entities are eligible; if not, none are eligible. The ERC is then calculated and filed for each separately.
This program is not an “income tax credit” and not related to your annual business tax returns or your profit/loss from the business. Although it is called a tax credit, it is most frequently received as a cash payment from the IRS. You may also use it to offset future payroll tax payments.
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