The way we learn, work, and shop personally has changed a lot due to the COVID-19 pandemic. On the business side, there were whole new challenges created.
These challenges included making profits, experiencing logistics and supply chain issues, and requiring mandates to keep employees safe. No matter how challenging, several startups were created nationwide.
If a business was opened on February 15, 2020, or later, the business could qualify for the ERC. The Employee Retention Credit (ERC) is a tax credit designed to help a business labeled as a recovery startup business.
When you have questions concerning qualification for the ERC, there is available help. This article explains how a business can benefit from the Employee Retention Credit.
Table of Contents
- Understand the Basics
- Defining an ERC Recovery Startup Business
- Things An Owner Should Know
- How to Claim ERTC
- Knowing How to Get ERC Assistance
Understand the Basics
The Employee Retention Credit is a special tax credit refunded by the IRS. The refund amount depends upon the percentage of wages that were qualified to be paid to employees.
The ERC is funded by the government and designed to help ease the business hardships that owners felt financially from the pandemic. With the ERC origins stemming from the 2020 signing of the CARES Act, the ERC provides even better business benefits than the others listed under the act, such as the EIDL or PPP.
The thing that separates ERC from the others is that there is no need to repay from the business and no certain way to use the funds.
Defining an ERC Recovery Startup Business
As defined by the American Rescue Plan Act, if a business is opened during the full swing of the pandemic, it may qualify for ERC credit. A few of the factors that determine qualification involve:
- Whether the business was opened on February 15, 2020, or later
- You have a certain number of employees
- The gross sales are below $1 million for the year
How Do I Know If My Business Qualifies?
When you have opened your Recovery Startup Business, the qualifications needed will involve the following:
- The business needs to have a certain number of employees
- Business was opened no sooner than February 15, 2020
- The annual gross profits must be below $1 million for the three prior years.
- No other eligibilities exist
- 3rd and 4th quarter payments were made to employees in 2021.
- The business is not registered as “tax-exempt” through the IRS
- Business operations must be suspended partially or entirely because of governmental requirements.
- Gross sales were significantly low
Things An Owner Should Know
As a business owner, it is essential to understand that if your business was opened in 2021 during the 2nd quarter, the business will not be qualified for any ERC claims for the previous year or the beginning quarters of 2021. Despite this, if restriction criteria are met or a revenue reduction has occurred, the business may become eligible for the first quarter of the year.
How Much ERC Can Be Claimed?
When it comes to how much businesses will receive from the ERC, normally, the amount will only be half of what the total wages were between March 2020 and ending December 31, 2020. Each quarter has a $10,000 wage limit per employee. The ERC for new business started in 2021 is obtainable to cover 70% of wages that were qualified and paid to employees, ending in September 2021. The limit for each quarter is also set at $10,000
This means that you can get $7,000 per employee each quarter with a maximum of $21,000 in credit per employee.
As a recovery startup business, the allowed credit limit will be $50,000 for each quarter. Eligible wages include wages that were paid ending December 31, 2021. Plus, the September 2021 limit is no longer needed for the wages paid. Operating following February 15, 2020, and having less than $1 million in gross revenue qualifies a business for ERC for new business started in 2020.
How Are Wages Qualified?
When wages are qualified, they will be what the employee receives directly from the company and any other expenses coming from health plans.
Figuring out qualified wages also depends on how many employees worked for the company in 2019. If the business opens in 2020, it will depend on that year.
When health benefits are provided to non-working employees, they may be seen as qualified. The insurance will determine the healthcare benefits if they are recognized as qualified wages.
If you are concerned about healthcare costs being a qualifying factor, contact an ERC specialist for clarification.
Updates for 2023
For a business to be eligible to receive the ERC for 2023, the amount of suspended operations must be more than nominal. According to the rules for eligibility, the amount must be a portion when determining a nominal amount. Also, the affected portion can be up to 10% of gross sales. Plus, the service hours of an employee can’t be more than 10% of all other employees.
How to Claim ERTC
While the program for ERC is over, the claims can still be obtained by businesses that file a 941 form along with your income taxes.
With many businesses needing to understand that a claim can be filed, the fact remains that qualification can still take place when taking advantage of the Paycheck Protection Program.
When your business taxes have been filed without the ERC, you can still apply retroactively by submitting a 941-X (Adjusted Employer’s Quarterly Federal Tax Return.
Knowing How to Get ERC Assistance
Because of COVID-19, many changes were seen in business and the way of life in general. With businesses feeling most of the blunt, the federal government was able to see that a drastic need for financial assistance was warranted by developing the ERC. Claiming the Employee Retention Credit is easy, and being able to apply for it is even more straightforward for a business, although there could be some confusion surrounding it.
If you want to file for your ERC today and skip the confusion, get in touch with a financial specialist to file your claim to receive the necessary financial relief.
1. What is meant by Recovery Startup Business?
The Recovery Startup Business is any business that is created shortly after the pandemic hit in 2020. The business will have less than $1 million in gross sales for all three years of the pandemic.
2. What is the maximum a business can claim for ERC?
Any Recovery Startup Business can obtain a maximum of $50,000 from the ERC.
3. What business types can receive the Employee Retention Credit?
Any employer with less than 100 employees can file for the ERC for 2020. Any business under 500 employees in 2021 can file for the ERC. Any company with over 100 employees working full-time during 2020 and over 500 in 2021 can apply.
4. Are there specific quarters that meet ERC requirements?
The amount received through the ERC is set at a maximum of $50,000 each quarter. So for all four quarters, the maximum can be $ 200,000 for a 2021 claim.
5. How does code section 3134 (c)(5)(A) define the Recovery Startup Business?
The code section 3134 ©(5)(A) states that the Recovery Startup Business is any business that opens following the onset of the pandemic on February 15, 2020. The same rules apply under section 162 for determining the start of a company if it was a trade.