The Employee Retention Credit (ERC) helped businesses stay open when the pandemic started. In 2020, the White House implemented the CARES Act. Since then, business owners have been taking advantage of this new legislation to keep the workforce in their jobs. If you’re one of the business owners who have not collected this refund, keep reading to learn more.
Thousands of business owners collected Payroll Protection Program Loans (PPP Loans) at the start of the pandemic. This forgivable loan helped struggling businesses keep their employees on the payroll. It was a necessary and very valuable loan, and many employers qualified to take advantage of it. When the CARES Act was first implemented, you couldn’t take advantage of both PPP loans and ERC. Those rules have changed, and you can now take advantage of both programs.
What is the Employee Retention Credit?
The CARES Act implemented many benefits for business owners. Employee Retention Credit (ERC) remains among the most significant benefits for businesses. The ERC is a refund the IRS provides to businesses on wages their employees earned during 2020 and 2021. ERC benefits employers across a wide range of business sectors. The eligibility requirements are broad enough to allow thousands of businesses to qualify. The ERC program gives eligible employers a refund on employee wages of up to $5,000 for wages earned in 2020, but up to $21,000 for wages earned in 2021.
What Are the Qualifications for the Employee Retention Credit?
Most businesses qualify for Employee Retention Credit refund. A qualifying organization must have an employee population less than 100 for 2020, or 500 for 2021, AND one of the four conditions must also apply:
- A reduction of Sales Volume when compared to 2019 sales volume numbers:
- The business experienced a mandated order to close or partially close (reduce capacity) to impede the spread of the virus.
- Your business suffered supply chain limitations that affected their ability to complete work.
- Business started after February 15th 2020 and qualifies as a Recovery Startup Business and will qualify for Q3 and Q4 2021.
What happened to Employee Retention Credit for Q4 2021?
Congress happened. In 2021, Congress passed the The Infrastructure Investment and Jobs Act. To pay for the bill, Congress elected to cancel Q4 2021 from ERC eligibility. Most established businesses can only collect ERC refunds through Q3 of 2021. The IRS asked business owners to stop accounting for and submitting Employee Retention Credits for that period. There is a provision in the American Rescue Plan that addresses the fourth quarter, see above.
How Do Employee Retention Credits Work in 2022?
The Infrastructure bill ended the Employee Retention Credit program in 2021. Many companies may ask the question “why is this still relevant?
The ERC is a refundable tax credit reported quarter-by-quarter on amended forms 941 (941-X). The IRS allows a company to amend a 941 up to three years after the quarter ends. Businesses may still claim their refunds until three years from the original quarter by the IRS regulations.
The Employee Retention Credit (ERC) was a fully refundable tax credit for employers. It was introduced under the CARES Act at the start of the pandemic, and encouraged businesses to keep employees on the payroll. If you want to see if your business qualifies for the Employee Retention Credit, reach out:
employerincentives.com and check out the helpful ERC FAQ.