The Employee Retention Credit, also known as the ERC, has been a vital source of financial support for small businesses impacted by the COVID-19 pandemic. The ERC is a tax credit program that helps businesses retain employees by providing payroll tax credits. The credit can be used to pay off debt, catch up on bills, and even reinvest in the business. However, businesses must stay current on ERC changes and qualification requirements to make the most of the program.
This article outlines four expert tips to help small businesses navigate the ERC program, including:
- Understanding the ERC refund timeline
- Understanding ERC eligibility requirements
- Leveraging the ERC for small businesses
- Working with ERC experts
Expert Tip 1: Understand the ERC Refund Timeline
Businesses must stay up-to-date on qualification requirements and program changes to ensure they maximize their benefits and ERC refund. In 2020, businesses could receive up to 50 percent of a maximum of $10,000 in qualifying wages per W2 full-time employee. To qualify, businesses needed to show a reduction in revenue due to the COVID-19 pandemic and retain their employees.
The ERC tax credit is applied to the business portion of the employee’s payroll taxes and is fully refundable. In addition, the credit could be claimed on Internal Revenue Service (IRS) Form 941, which allowed businesses to reduce their payroll tax deposits.
If a business owner received a Paycheck Protection Program (PPP) loan in 2020, they could still claim the ERC. Additionally, they could also claim ERC on wages not forgiven under the PPP loan. However, claiming ERC required additional steps on the fourth quarter Form 941 or Form 941-X.
In 2021, the ERC program was extended with changes made by the Consolidated Appropriations Act (CAA). As a result, businesses could receive up to 70 percent of a maximum of $10,000 in qualifying wages per employee in eligible calendar quarters between January 1 and June 30, 2021. The maximum allowable credit was $14,000 per employee or $7,000 per quarter (resulting in ERC tax credits up to $28,000 per employee). Businesses with 500 or fewer employees could also request an ERC refund of an advance credit payment by filing Form 7200.
As with the 2020 program, the ERC applied to the business portion of the employee’s payroll taxes and was also refundable. The credit could be claimed on Form 941, and businesses could reduce their payroll tax deposits to receive the ERC tax credit.
The ERC refund timeline can affect small businesses in different ways. First, a delay in receiving the ERC refund can be detrimental to businesses struggling financially. Therefore, businesses must stay current on ERC changes and qualification requirements, as many updates can change qualifications retroactively.
Expert Tip 2: Understand ERC Eligibility Requirements
To qualify for the ERC refund, businesses must meet specific eligibility requirements. One of the primary eligibility requirements is a significant decline in revenue. Businesses that experienced a 20 percent or more decline in revenue in a specific quarter compared to the same quarter in 2019 may be eligible for the ERC tax credit.
Another eligibility requirement is employee retention. To claim the ERC credit, businesses must have retained their W2 full-time employees; This means that businesses cannot have laid off or furloughed more than a certain percentage of their employees during the eligible quarter.
The ERC refund amount is calculated based on eligible wages paid to W2 full-time employees during the eligible quarter. The credit equals 70 percent of qualified wages up to $10,000 per employee per quarter. Businesses can receive a maximum credit of $7,000 per employee per quarter.
Expert Tip 3: Leverage the ERC for Small Business
One of the most significant benefits of the ERC is the extra liquidity it provides by reducing the amount of payroll taxes that must be paid. Small business owners can reinvest the credit into their business, pay off debt, or simply take the opportunity to catch up on bills and expenses. This money put back into the business can help it grow and expand.
Also, it’s important to note that the ERC can be used with a PPP loan; This means that business owners can benefit from both programs and receive additional financial support. Wages for eligible employees can be split into multiple periods for the PPP and ERC refund. You can also claim credits for wages outside the PPP loan period with the ERC credit. For example, if the PPP window was April to May, you can apply the ERC for payroll expenses from January to February and June to December. However, it’s essential to be aware of the requirements for each program, as the wages used to obtain PPP loan forgiveness cannot be used to calculate the ERC amount.
Expert Tip 4: Work With ERC Experts
The deadlines and rules around the ERC refund and what counts as qualified wages can be confusing for small business owners. That’s why it’s critical to get help from ERC Experts.
ERC professionals, including ERC Tax Experts, have a deep understanding of the program and are up-to-date on any tax updates and changing regulations you need to be aware of; This can be particularly beneficial for small businesses that may not have the time or resources to stay current on the latest ERC developments or have a hard time deciphering all of the requirements.
By streamlining the process and ensuring that businesses are claiming the correct amount of credits, ERC professionals can help businesses avoid costly mistakes and delays in receiving their refunds.
Working with ERC professionals can help businesses:
- Ensure they get the most out of the ERC refund program
- Confidently navigate the program
- Maximize their benefits
In conclusion, the ERC is a tax credit that can provide much-needed relief to small businesses impacted by the COVID-19 pandemic. However, to make the most of the program, you must work with ERC professionals who can guide you through the process and ensure you claim the correct amount of credits.
Don’t miss out on this valuable opportunity to support your business and its employees during these challenging times. Start maximizing your ERC refund today by estimating your tax credits with ERC Tax Experts.