The Top 17 Employee Retention Credit Frequently Asked Questions (ERC)

A significant number of businesses today continue to obtain the credits that are provided through the Employee Retention Credit program. This program allowed businesses to receive a refund that helped offset financial losses that the company faced during the pandemic from 2020 to 2021.

Even in the current year, applying for the ERC can still be accomplished through the use of Form 941-X, which is an amended version of the Quarterly Federal Payroll Tax Return. Initially, this form covers the quarters of an eligible company.

With more than three years into the availability of the ERC, questions may need to be answered to have a complete understanding of how the ERC works, the eligibility process, and other circumstances. To obtain the best information, we’ve listed some of the best Employee Retention Credit FAQs below.

ERC Frequently Asked Questions

1. What is the Employee Retention Credit?

Known as a credit, this type is based on payroll taxes and is refunded to a business that applies for it. The employee amounts can be as much as $5,000 for each 2020 quarter and $21,000 for each 2021 quarter.

2. How is eligibility for ERC determined?

When a suspension of business takes place and is either partial or full-time due to governmental mandates, a business cannot conduct business as usual. Because of this, the business can be eligible for the Employee Retention Credit. Besides the suspension, if the gross receipts were lower than the previous year, then eligibility is also granted.

3. What are considered eligible wages?

The credits stemming from the ERC get calculated around the wages employees receive while working for the company. With a vast majority of companies taking advantage of the Employee Retention Credit, there has been a tremendous amount of funding obtained from the amount of payroll tax that has been collected. Because of this, the benefits stemming from the ERC can also be significant.

4. Are the benefit amounts equal for both small and large businesses?

The benefits of a small business will be enhanced according to the ERC. This is mainly for when the employer had become eligible and began paying wages to their employees. The business that is considered significant can file for only wages that were paid when the employee was not actively working for the company.

5. How is the ERC calculated for either a small or large business?

For the ERC to be claimed for 2020, the company must have had less than 100 employees or very few full-time employees compared to the same timeframe in 2019.

For the ERC to be claimed for 2021, there should have been more than 500 employees compared to the same 2019 timeframe.

To calculate the ERC for a business operating the entire year of 2019, the number of employees is calculated by dividing the number of employees working full-time each month and obtaining an average by dividing it by 12 months. Other rules may apply if a business was not operating for the entire 2019 calendar year.

6. Are ERC-eligible wages only those from full-time employees?

The wages used to determine ERC eligibility can come from full-time or part-time employee wages.

While there is no difference in work status, the credit is only provided for a maximum of $10,000 per employee and the amount for healthcare costs each employee was eligible for.

7. What periods can be claimed for the ERC?

ERC eligibility depends on the wages paid throughout 2020 and the first nine months in 2021.

8. Is the Employee Retention Credit still obtainable?

The Employee Retention Credit is still obtainable. The 2020 ERC end date is April 15, 2024, and the 2021 ERC expires on April 15, 2025.

9. Is the ERC used as income once received?

The ERC must be used for deductions to be reduced on the submitted early tax return.

10. Does an employer repay the Employee Retention Credit?

The company is not paid back when it obtains the Employee Retention Credit. The ERC is a tax credit based on taxes obtained through paid wages.

11. How can the ERC be applied for?

To apply for the ERC, it must be filed using the amended 941-X, the Quarterly Federal Payroll Tax Return. This will include each quarter that the business was eligible for.

12. What is the timeframe to receive the credit after filing?

On average, the timeframe to obtain the credit is around nine months from filing the 941-X.

13. Can a business file for both the Employee Retention Credit and Paycheck Protection Program?

Although the ERC and PPP have the same fundamental idea, the PPP will only cover wages for up to ten weeks and cannot be used to calculate wages used to file for the ERC. When the ERC is filed for, the eligibility periods are longer and based on wages paid within monthly quarters. The PPP allows expenses to be paid that are non-wage.

When it comes to the ERC, there must be a paper trail that states where the PPP is used and how throughout the period it is used.

The funding from the PPP can be utilized to cover wages that would not be eligible for ERC taxes, such as wages that are more than the maximum amounts in any quarter.

14. Is forgiveness needed for the PPP before ERC filing?

Although it is not necessary to obtain PPP forgiveness, it's a good idea to have funds allocated to cover wages that are not eligible.

15. Is there a difference between ERTC and ERC?

There is no difference between ERTC and ERC; they are the same tax stemming from payroll wages. The credit originates from the 2020 Coronavirus Aid and Relief Act for businesses to retain employees during the pandemic. The credit is refundable through the filing of tax returns.

16. Where does the necessary information for filing the ERC come from?

While one may think that any financial professional would be knowledgeable about the ERC, it may be complex for many. It may result in inaccuracies and a delay in receiving the refund credit. To ensure that the credit is applied and filed correctly, it is crucial to have all documents to avoid delays or the risk of any audit taking place in the future.

It is vital to have a financial specialist who can know what is needed to accompany Form 941 so that the ERC can be appropriately filed.

17. Is ERC available for a business that has closed?

When a business has closed due to the financial strain of the pandemic, it can file for the ERC. The purpose of the ERC is to assist a business that has obtained financial hardship from the pandemic. This allows the company to receive $5,000 per employee regardless of the business being closed. With the main reason for closure being from government mandates, the ERC is a way to help the business to recover.

With an extension of the ERC by the IRS, businesses can now file their ERC up to 2024 for the 2020 filing or 2025 for the 2021 filing.

18. What does the CARES Act mean?

Known officially as the CARES Act was able to provide $2 trillion in the form of a stimulus in March 2020. This act helped offset the negative financial impacts a business may experience due to the pandemic.

The CARES Act also includes the Employee Retention Credit that many businesses file to obtain a refund for eligible wages that were paid to employees between March 2020 and December 2020. This ensured that employees could continue working despite having to work in an alternate manner, such as remotely from home.

An issue often seen within the business was the massive amount of layoffs. Because of this, the credit can be claimed shortly after being filed so that your staff can continue working.

Final Thoughts

With the Employee Retention Credit, your business will get more than great financial support. It provides an excellent way to retain your employees so your business can continue.

This act also helps employees who may have had financial difficulties and possibly experienced other issues due to no longer having an income. So now your staff can continue to pay their rent or mortgage and live the life they had before the pandemic.

When the funds are received from the credit, they can be used towards support and other payroll purposes.