The Employee Retention Credit (ERC) was a refundable federal tax credit, not a loan, which incentivized employers to retain staff during the COVID-19 pandemic. This lifeline was accessible for tax years 2020 and 2021, with specific benefits varying yearly. For instance, the 2020 ERC offered a 50% credit on wages up to $10,000, translating to a maximum of $5,000 per employee. In contrast, the 2021 ERC provided more significant relief, giving a 70% credit on the same wage ceiling per employee per quarter, reaching up to $28,000 per employee for eligible businesses.
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Why Was ERC Created?
The ERC was structured to facilitate recovery from the 2020 economic shutdown, compensate for lost revenue, and maintain business operations. A particular feature of the 2021 ERC was its consideration for new enterprises, the Recovery Startup Businesses, which had specific eligibility parameters.
Are You Eligible?
Eligibility for ERC extended beyond a decline in gross receipts or a COVID-19-induced decrease in revenue. Organizational operations within the US, regardless of size, across numerous industries, and under various operational constraints, qualified for this tax credit. The ERC even considered businesses affected by government-mandated suspensions and operational limitations, with qualification criteria tied to the impact severity and duration.
Qualifying wages, inclusive of cash payments and a part of employer-provided healthcare costs, were pivotal in ERC claims. The ERC was also available to Paycheck Protection Program (PPP) loan beneficiaries. The employee count in 2019 influenced the credit calculations, with different criteria for businesses with fewer or more than certain target numbers of full-time employees.
Claiming Employee Retention Credit required amendments to tax filings, with IRS processing taking an average of 4 to 10 months. Should the process seem overwhelming, organizations like Credit League, a team of attorneys and CPAs, can provide expert assistance. They facilitate the ERC claim process, ensuring businesses access the credit they rightfully deserve.