ERC Resources

ERC FAQ’s

What is the Employee Retention Credit (ERC)?

The ERC is a refundable tax credit that qualifying business can claim on qualified wages paid to their employees. Business can qualify for the ERC in 2020 and 2021.

What is a “qualifying business”?

There are a few major ways businesses can qualify. The first way if they experienced significant declines in gross receipts when compared to 2019. The second way is if they were shutdown due to governmental orders because of COVID-19. The third way is if they were shutdown or experienced significant losses because of a disruption in their supply chain that was caused by governmental shutdowns. The fourth way is if they were a “Recovery Startup Business”, which means they started operations after February 15th, 2020 and averaged less than $ 1 million in revenues in 2020 and 2021. Businesses can only qualify as a “Recovery Startup Business” if they are unable to qualify in any of the other ways.

What government shutdowns count as qualifying for the ERC?

Orders, proclamations, or decrees from the Federal government, or any State or local government are considered “orders from an appropriate governmental authority” if they limit commerce, travel, or group meetings due to COVID-19 in a manner that affects an employer’s operation of its trade or business, including orders that limit hours of operation and, if they are from a State or local government, they are from a State or local government that has jurisdiction over the employer’s operations (referred to as a “governmental order”).

What is a "significant decline in gross reciepts"?

The answer to this question is different for 2020 and 2021. Quarterly receipts for Q2-Q4 of 2020 (the only eligible quarters for ERC in 2020) are compared to the same quarters of 2019. If the gross receipts in 2020 declined by 50% or more, then that quarter experienced a “significant decline in gross receipts”. Quarterly receipts for Q1-Q3 of 2021 (the only eligible quarters for ERC in 2021) will be compared to the same quarters of 2019. If the gross receipts in 2021 declined by 20% or more, that quarter experienced a “significant decline” in gross receipts.It is important to note that the reasoning for your decline in gross receipts is irrelevant to qualification for ERC. This means that it doesn’t matter why you experienced a decline in gross receipts. Employers that were not in business during all of 2019 can use alternative means to determine a decline in gross receipts. Contact us to find out more.

What are "qualifying wages" and whos's wages count?

Most employees’ wages will count. Wages paid to employees who are more than 50% owners of the company, people related to those more-than-50%-owners, and independent contractors will not count. In general, wages and compensation that are subject to FICA taxes, as well as qualified health expenses, are “qualifying wages”. Only wages paid between March 12th, 2020 and December 31st, 2021 can be subject to the ERC.

Can businesses of any size qualify for the ERC?

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Can I get ERC if I got a Payroll Protection Program loan (PPP)?

Yes. Any wages used for PPP loans which have been forgiven (or are going to be forgiven) do not qualify for ERC. However, all other wages can still be used as qualifying wages for ERC purposes.Example: A business had qualifying wages (for the purpose of ERC) of $500,000 in Q2 of 2021. That same business received a $100,000 PPP that was forgiven and all $100,000 were also qualifying wages for ERC. This business can still receive $400,000 of ERC.

How much money can I get for the ERC?

In 2020, business can receive up to 50% of qualifying wages (capped at $10,000 of wages for the whole year) per employee as a refund, which means they can get up to $5,000 in credits per employee in 2020. In 2021, they can receive up to 70% of qualifying wages (capped at $10,000 of wages per quarter per employee) as a refund, which means they can get up to $21,000 in credits per employee in 2021.For example, a business has 10 qualifying employees who are each paid at least $10,000 of qualified wages per quarter (or $40,000 per year). In 2020, that business can get a maximum of $50,000 as a refund. In 2021, that business can get up to $210,000 as a refund.The answer to this question is different for “Recovery Startup Businesses” than all other qualifying businesses (see the next question for the answer if you are a Recovery Startup Business)

How much money can a Recovery Startup Business get for ERC?

Recover Startup Businesses use the same process that’s mentioned in the previous question to calculate the amount of qualifying wages they have. The difference is that their refund is limited to a maximum of $50,000 in Q3 and Q4 of 2021, so these businesses can get a maximum of $100,000 in ERC refunds.

Does the ERC have to be paid back?

No. The ERC does not need to be paid back. Additionally, you do not need to apply for “forgiveness” for ERC refunds. ERC refunds are generally received by paper check in the name of the business applying for the credit.

Is the Employee Retention Credit considered taxable income?

Yes and no. The Employee Retention Credit is not considered taxable income. However, it does reduce the expenses that could otherwise be deducted on its federal income tax return, meaning that wages used for the Employee Retention Credit cannot be used as an expense that would lower a business’ tax liability. So yes, it’s effectively taxable.

How do I claim the ERC?

Employers claim the ERC by doing all appropriate calculations (which we will do for you) and filing a Form 941x (which we will do for you). We recommend you hire a CPA (like us) to file this credit because of it’s complexity and the numerous nuances associated with it (especially the way it interacts with PPP loans).

Will ERC funding run out?

No. ERC funding will not run out (like PPP funding did). The IRS has not stated that ERC funding is limited.

What is the deadline to apply?

The deadline to apply corresponds to the maximum time period allowed by the IRS to file an amended payroll tax return (referred to as a 941x). This is generally three years after the original 941 was due. However, there is no advantage we can see for waiting until then! If you hire us to perform this service, we will file the appropriate forms for you at the earliest opportunity, well ahead of the 2023 and 2024 deadlines.

How long does it take to receive the Employee Retention Credit once it's filed?

The IRS does not have an official answer to this question, but they are currently backed up and we have seen that it generally takes 8 or more months to receive the refund if claiming the credits on an amended return (vs. “real time”).

Can religious organizations and other non-profits qualify for ERC?

“Gross receipts” for purposes of the Employee Retention Credit for an employer other than a tax-exempt organization has the same meaning as when used under section 448(c) of the Internal Revenue Code (the “Code”). Under the section 448(c) regulations, “gross receipts” means gross receipts of the taxable year and generally includes total sales (net of returns and allowances) and all amounts received for services. In addition, gross receipts include any income from investments, and from incidental or outside sources. For example, gross receipts include interest (including original issue discount and tax-exempt interest within the meaning of section 103 of the Code), dividends, rents, royalties, and annuities, regardless of whether such amounts are derived in the ordinary course of the taxpayer’s trade or business. Gross receipts are generally not reduced by cost of goods sold, but are generally reduced by the taxpayer’s adjusted basis in capital assets sold. Gross receipts do not include the repayment of a loan, or amounts received with respect to sales tax if the tax is legally imposed on the purchaser of the good or service, and the taxpayer merely collects and remits the sales tax to the taxing authority.

What are "gross receipts" for an employer other than a tax-exempt organization?

Upon request by the IRS, what records must third party payers obtain from their client employers to substantiate the client's eligibility for the Employee Retention Credit?

If a third party payer is claiming the Employee Retention Credit on behalf of the client employer, it must, at the IRS’s request, be able to obtain from the client and provide to the IRS records that substantiate client’s eligibility for the Employee Retention Credit.

Is the determination of gross receipts based on a "cash" or "accrual" basis?

“Gross receipts” are the gross receipts of the taxable year in which such receipts are properly recognized under the taxpayer’s accounting method used in that taxable year for Federal income tax purposes. In addition, gross receipts include any income from investments, and from incidental or outside sources, regardless of whether that income is included in the taxpayer’s gross income under § 61 of the Code

Can an Eligible Employer that uses a third party to report and pay employment taxes to the IRS get the Employee Retention Credit?

Yes, if a common law employer is otherwise eligible to receive the Employee Retention Credit, it is entitled to the credit, regardless of whether it uses a third party payer (such as a reporting agent, payroll service provider, PEO, CPEO, or agent) to report and pay its federal employment taxes. The third party payer is not entitled to the Employee Retention Credit with respect to the wages it remits on the employer’s behalf (regardless of whether the third party is considered an “employer” for other purposes of the Internal Revenue Code (the “Code”)). If an employer uses a third party to file, report, and pay employment taxes, certain rules for claiming/reporting the Employee Retention Credit will apply depending on the type of third party payer the employer uses. If an Eligible Employer uses a reporting agent to file the Form 941, Employer’s Quarterly Federal Tax Return, the reporting agent will need to reflect the Employee Retention Credit on the Form 941 it files on the employer’s behalf.

ERC Resources

Latest Updates on Coronavirus Tax Relief

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2020*

Q1–Q2 2021

Q3 2021

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Eligibility flowcharts

ERC FAQ’s

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ERC Resources

Latest Updates on Coronavirus Tax Relief

Risk Free

2020*

Q1–Q2 2021

Q3 2021

Q4 2021

Eligibility flowcharts

ERC FAQ’s

Schedule an ERC Consultation

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