The Employee Retention Credit (ERC) or the Employee Retention Tax Credit (ERTC) is a financial reimbursement law that was enacted by the Federal Government with the CARES Act. Afterward, it was upgraded with certain amendments in the Consolidated Appropriations Act in December 2020. The prime purpose of this act is to compensate employers who have incurred losses during the Covid-19 pandemic as of governmental restrictions.
The refundable credit for the employers varies in accordance with the time period for which they file their ERC. The focal point is that the ERC is available for only organizations, not for individuals. There is a laid out criterion to qualify for the ERC program. Let’s dive into the nitty gritty of this refundable tax credit scheme.
Employee Retention Credit – Why And When?
The Employee Retention Credit program was created for businesses that have had their employees on the payroll during the Covid-19 outbreak despite suffering financial setbacks. The foundational reasoning for this law by the US government was to empower those employers who kept their FTEs during the semi or complete lockdown of the business activities.
This act came into effect on March 2020 alongside the Paycheck Protection Program (PPP). The IRS devised a mechanism for filing ERC claims and the process was expedited to benefit the masses during the financial meltdown. This strategic financial reciprocation provided a much-needed cushion to the embattled organizations.
The catch is that employers enrolled in the PPP program can also apply for ERC with some limitations to avoid double dipping. The timeframe is the most crucial and decisive factor while filing the ERC claim.
Qualification Benchmark For Employee Retention Credit
- First things first, an employee must have paid wages to qualified FTEs (full-time equivalent) between the timeline of March 12, 2020, and January 1, 2022. This is the topmost condition to qualify for the Employee Retention Credit reimbursement. There is further differentiation of refunded credit within this timeframe.
- The organization eligible for ERC was partially or completely shut down via Government orders during the peak of Covid-19.
- The gross receipts of the employers should have fallen below 50% and 80% for the years 2020 and 2021 respectively.
- Employers availing the PPP loans are also eligible for ERC. However, it must be noted that the PPP-enrolled employees cannot use wages that were entitled to as payroll costs while obtaining the PPP forgiveness. That way, double dipping is avoided.
- For the ERC of 2020, 50% credit is applicable for the qualified wages with a maximum credit of $5,000 per employee. The number of FTEs is restricted to 100.
- For the ERC of 2021, 70% credit is applicable for the qualified wages with a maximum credit of $7,000 per employee. The number of FTEs for the year 2021 is capped at 500.
- The federal and state government functionaries do not qualify for ERC except for the SNFs (Skilled Nursing Facilities). However, tax-exempt and government institutes are entitled to Elective Payments from the clean energy tax credits which have been launched under the Inflation Reduction Act. The pre-filing for the Elective Payments will be for the tax years after December 31, 2022.
Buckle Up Against ERC Scammers
Similar to other government-backed support programs, the Employee Retention Credit has also come under the radar of scammers. Particularly, small to mid-sized organizations have to be very cautious about scammers and their money-hacking tactics. The scammers usually charge a huge upfront fee for filing the ERC for employers and they will promise that “they will expedite the application process and will get you the refunded credit swiftly.”
Therefore, you have to look out for the red flags before going down the road of scammers. The scammers will manipulate you by presenting false eligibility requirements. They will analyze your profile and will showcase you as a qualified employer for the ERC without proper explanation.
Hence, it is absolutely necessary to be well-versed with the qualification criterion discussed earlier. Once you are crystal clear regarding the process, you will be able to avert the scammers. Get yourself acquainted with the application criteria, application process, and the funded thresholds of the ERC to slide past the scammers.
Need Help To File ERC? Let’s Connect!
Filing an ERC involves an array of complex calculations along with the 941 Form filed during the employment tax returns. No need to fret, Nuage-Digital has got you covered. Backed by an experienced team of CPAs and payroll professionals, we can review your organization comprehensively to ascertain the qualification for the ECR and can file it accordingly.
We will keep you updated throughout the filing process and every step of the filing mechanism will be perfectly transparent. Additionally, you get the round-the-clock support of our expert accountants who are more than prepared for your queries. Hit us up right away so we can check your Employee Retention Credit eligibility. Let’s get you refunded!
Frequently Asked Questions (FAQs)
What wages qualify for the calculation of the Employee Retention Credit?
Salaries, cash wages (both hourly and fixed), tips, health insurance benefits, and any other taxable wages qualify for the calculation of the ERC.
How to apply for the ERC retroactively?
You need to fill out the “941-X” form to apply for the ERC retroactively.
What is the deadline for the Employee Retention Credit?
For the ERC claims of 2020, the deadline is April 15, 2024. Whereas, the deadline for the ERC claims of 2021 is April 25, 2025.
Are tip wages included in the qualified wages?
Yes, the tip wages are included in the qualified wages as long as they exceed $20 for a calendar month.
How long does it take businesses to get the refunded ERC?
After filing the Employee Retention Credit, it takes 6-8 weeks to get the funded credit. However, the wait time may vary from business to business.
