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ERC - Employee Retention Credit A Definitive Guide [2023]

UPDATED
Sep 05, 2023
 

ERC: Employee Retention Credits Guide

Your Complete Guide to the Employee Retention Credit (ERC/ERTC)

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EIAG ERC: Employee Retention Credit

ERC/ETRC 2023 Welcome

The COVID-19 pandemic brought unprecedented challenges to businesses nationwide, both large and small. Government regulations, such as social distancing mandates, customer capacity limits, and sanitation guidelines, forced businesses to modify their operations. Federal and local mandates forced consumers to stay home and go out for necessities only, which further disrupted businesses.

The US economy took a nosedive as the COVID-19 pandemic spread. In the second quarter of 2020, GDP fell by nearly 9%, and almost 10 million American jobs were lost by the end of the year. A recent survey found that 83% of business owners believe that the early 2020s have been the worst time for small businesses since the Great Depression.

To help limit the economic damage caused by the COVID-19 pandemic, the US Congress passed the $2.2 trillion CARES Act. The CARES Act created a range of temporary pandemic relief funds to support American families, furloughed workers, unemployed individuals, small businesses, corporations, and healthcare providers. It is still the largest financial rescue package in our nation’s history.

One important component of the CARES Act is a special government tax credit called the Employee Retention Credit (ERC). The ERC was originally enacted as part of the CARES Act in March 2020, and has been amended three separate times since then by the Taxpayer Certainty and Disaster Relief Act of 2020 (Relief Act), the American Rescue Plan (ARPA) Act of 2021, and the Infrastructure Investment and Jobs Act (IIJA).

EIAG has developed a Guide to help businesses navigate the intricacies of the ERC so that they can understand and secure this meaningful benefit as part of the nation’s overall pandemic recovery strategy. 

Employee Retention Tax Credit [2023]

A Definitive Guide to ERC by EIAG

🟢  Employee Retention Credit Explained
🟢  Qualifying for the Employer Retention Tax Credit
   ▹Employer Qualifications
   ▹Employee Qualifications
   ▹Additional Qualification Requirements
🟢  Amount of Credit
   ▹2020 Credit
   ▹2021 Credit
🟢  ERC 2020 vs ERC 2021 Qualifications
   ▹Analysis of ERC Enhancements (Comparison Chart)
🟢  Industries Benefiting from ERC
   ▹EIAG's Areas of Specialization
🟢  Federal Laws Effecting ERC
🟢  ERC Advance Payments Ended
🟢  Get Your Employee Retention Tax Credit in 2022
🟢  EIAG's Employee Retention Credit Methodology
   ▹EIAG's Four Step Process to ERC
   ▹EIAG's ERC Related Services
🟢  ERC Submission Deadlines
🟢  The Application Process
🟢  ERC: Employee Retention Credits in the News

About EIAG

We Are ERC Experts. 

EIAG is a well-established credits and incentives firm that has helped thousands of businesses, including many of the Fortune 500, secure government incentives for over 20 years. We have been administering employee related tax credits, similar to the ERC, for many years and will continue to do so long after. EIAG stands in partnership with our clients, providing a wide range of services after the benefit is secured, including administration and audit support.

At EIAG, we have a team of experts in place to help you secure your ERC claim and receive your rightful compensation with confidence, security, and peace of mind.

Employee Retention Credit Explained

The Employee Retention Credit (ERC) is a refundable payroll tax credit that was created under the CARES Act to incentivize businesses to keep employees on payroll during the pandemic. Businesses could claim up to $26,000 per W-2 employee. The funds were intended to help businesses keep operations afloat and/or thrive amid the economic fallout caused by the pandemic, such as shutdowns, capacity limits, sanitation measures, supplier disruptions, and stay-at-home orders.

Today, there are millions of unclaimed dollars available, and companies impacted by the pandemic may be eligible to claim their credit. Businesses do not have to be struggling at this very moment to qualify.


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Qualifying for the Employer Retention Tax Credit

The ERC has different qualification requirements, but the most basic requirement is that the employer must have been carrying on a trade or business during the respective ERC calendar quarter. If you were self-employed during the eligibility period, you do not qualify for ERC refunds for your own wages, but you may be able to claim the credit for wages paid to other people who worked for you.

It is important to note that the ERC has been amended three separate times since it was originally enacted as part of the CARES Act. If your business was ineligible when the plan was introduced, EIAG encourages you to review your business's facts and circumstances. Many businesses that did not originally qualify can now file for retroactive ERC reimbursement.

For example, in Spring 2020, businesses had to choose between receiving a PPP loan or applying for the ERC. This restriction no longer exists, so a business that received one or two PPP loans can still be eligible for ERC in 2020 and/or 2021.

Employer Qualifications

Qualifying an employer for the ERC is considered on a quarter-by-quarter basis because the ERC has undergone multiple amendments. To qualify for ERC for one or more quarters, an employer must have experienced at least one of the following:
● For calendar quarters in 2020 and/or 2021, a full or partial suspension or interruption of operations due to government orders due to COVID-19,
● For calendar quarters in 2020 only, a significant decline in gross receipts (beginning when gross receipts are less than 50% of gross receipts for the same calendar quarter in 2019 and ending in the first calendar quarter after the calendar quarter in which gross receipts are greater than 80% of gross receipts for the same calendar quarter in 2019),
● For first, second, and third calendar quarters in 2021, a decline in gross receipts to be defined as a quarter where gross receipts are less than 80% of the same quarter in 2019, or an alternative quarter election giving employers the ability to look at the prior calendar quarter and compare to the same calendar quarter in 2019 to determine whether there was a decline in gross receipts. For employers not in existence in 2019, alternative comparisons are allowed,
   • For third and fourth calendar quarters of 2021, "recovery startup businesses" that:
   • Began carrying on any trade or business after February 15, 2020,
   • Had average annual gross receipts under $1,000,000 for the 3-taxable-year period ending with the taxable year that precedes the calendar quarter for which the credit is determined.

Qualification determination is tricky because you must make sure you meet qualifications for both the business and each employee you claim.

Here are some additional details on the ERC qualification requirements:
● For the "full or partial suspension or interruption of operations" qualification, the suspension or interruption must be due to a government order issued due to COVID-19. The order must specifically suspend or interrupt the employer's business activities,
● For the "significant decline in gross receipts" qualification, the decline must be at least 20%. The decline is calculated by comparing gross receipts in the applicable quarter to gross receipts in the same quarter in 2019,
● For the "alternative quarter election" qualification, the employer must elect to use the prior calendar quarter as the comparison period. This election must be made on the employer's original or amended Form 941,
● For the "recovery startup business" qualification, the business must have begun carrying on any trade or business after February 15, 2020. The business must also have average annual gross receipts under $1,000,000 for the 3-taxable-year period ending with the taxable year that precedes the calendar quarter for which the credit is determined.

Employee Qualifications

The amount of wages that an employer can claim for the ERC depends on the size of the employer and the employee's eligibility.

For 2020 quarters, employers with an average of 100 or more full-time employees during 2019 can only claim wages paid to employees who were not providing services. Employers with an average of 100 or fewer full-time employees during 2019 can claim wages paid to all employees, regardless of whether they were providing services.

For 2021 quarters, the threshold increases to an average of 500 or more full-time employees. Employers with an average of 500 or more full-time employees during 2019 can only claim wages paid to employees who were not providing services. Employers with an average of 500 or fewer full-time employees during 2019 can claim wages paid to all employees, regardless of whether they were providing services. For the third calendar quarter of 2021, "severely financially distressed employers" may treat all wages as qualified wages during the calendar quarter in which the employer is severely financially distressed.

Not all employees are eligible for the ERC. For example, the IRS considers a majority owner's wages ineligible for the ERC refund calculation. A majority owner has 50% or more company ownership. In addition, relatives' wages of the majority owner also do not qualify to be calculated in the ERC refund. Relatives include spouses, children and children of children, siblings and step siblings, parents and step parents, nieces and nephews, aunts and uncles, and son- or daughter-in-laws.

Additional Qualification Requirements

The CARES Act mandates that employers are unable to calculate the ERC for the following wages:
● Wages that are eligible for a tax credit under the Families First Coronavirus Response Act (Phase II),
● Wages that are counted as credit for Internal Revenue Code § 455 family and medical leave,
● Wages paid to individuals related to majority owners,
● Employees that are eligible for a Work Opportunity Tax Credit under Internal Revenue Code § 51,
● The amount of PPP wages used for forgiveness,
● Wages paid under the Credit for Employer Differential Wage, Empowerment Zone Employment Credit, Research Activities Credit, and Indian Employment Credit.

However, these qualifications do not limit the business, only specific employees’ wages from the overall ERC calculation. The best way to make sure you meet all qualifications and do not make any costly mistakes is to have a professional company, like EIAG, that specializes in ERC review your records. We can answer questions and assist with obtaining your ERC credit.


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Get up to $26,000
per employee

Was your business impacted by COVID?
Contact to discover if your business may be eligible for ERC
.

Amount of Credit

The ERC refund amount varies for each year. To qualify, employers must meet certain requirements, which have changed several times since the program began. It's important to read the latest requirements and stay current on changes, as many are retroactive.

2020 Credit

The Employee Retention Credit (ERC) is a refundable tax credit for businesses that paid employees from March 13, 2020 to December 31, 2020. The credit is 50% of up to $10,000 in qualified wages, up to $5,000 per employee. Qualified wages include gross wages and health insurance premiums. Businesses that received a PPP loan in 2020 can still claim the ERC.

To claim the credit, businesses must file Form 941-X, an amended employment tax return. The credit is applied to the business portion of the employee’s Social Security tax. Businesses that qualify for the ERC may receive a refund even if their tax liability is zero.

2021 Credit

The Employee Retention Credit (ERC) is a refundable tax credit for businesses that paid employees from January 1, 2021 to September 30, 2021. The credit is 70% of up to $10,000 in qualified wages, up to $7,000 per employee. Qualified wages include gross wages and health insurance premiums. Businesses that received a PPP loan in 2021 can still claim the ERC.

To claim the credit, businesses must file Form 941-X, an amended employment tax return. The credit is applied to the business portion of the employer’s Social Security tax for tax quarters one and two and employer’s Medicare tax for tax quarters three and four. Businesses that qualify for the ERC may receive a refund even if their tax liability is zero.

The ERC was extended to include recovery startup businesses, which are businesses that were formed after February 15, 2020 and before December 31, 2021 and that have fewer than 100 employees. Recovery startup businesses may apply for a maximum ERC of $50,000 for each tax period July 1, 2021 through September 30, 2021 and October 1, 2021 through December 31, 2021.

The ERC is a valuable tool for businesses that have been affected by the COVID-19 pandemic. The credit can help businesses keep employees on the payroll and avoid layoffs. The ERC is also a refundable tax credit, which means that businesses can receive a refund even if their tax liability is zero.


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ERC 2020 vs ERC 2021 Qualifications

The ERC was enacted as part of the CARES Act in March 2020 and has been amended three separate times since then. The ERC was amended by the Taxpayer Certainty and Disaster Relief Act of 2020 (Relief Act), the American Rescue Plan (ARPA) Act of 2021, and the Infrastructure Investment and Jobs Act (IIJA). The ERC qualifications for the 2021 tax year are more accessible than 2020, meaning that many businesses may qualify for more sizable ERC refunds in 2021.

The ERC is a refundable tax credit for businesses that paid employees during certain periods in 2020 and 2021. The credit is applied to the business portion of the employee’s Social Security tax. Businesses that qualify for the ERC may receive a refund even if their tax liability is zero.

Please see the comparison chart below.

Analysis of ERC Enhancements (Comparison Chart)

COMPARE2020 ERC2021 ERC
Partially or fully suspended business operationsYes (or decline in gross receipts)Yes (or other eligibility)
Significant decline in gross receipts threshold50% until the quarter following the quarter that reaches above 80% of the corresponding quarter’s gross receipts

20% and includes alternative quarter election options
Recovery start up business (business start after 2/15/2020)NoYes for quarter 3 and/or quarter 4 only
Applicable dates3/13/2020-12/31/2020 1/1/2021-9/30/2021 (7/1/2021-12/31/2021 for Recovery Startup businesses)
Credit percentage applied to qualified wages50%70%
Per-employee "qualified" wage limit$10,000 per 2020$10,000 per quarter
Maximum credit per employee$5,000 per 2020
$7,000 per employee per quarter
Maximum number of average full-time employees allowed to claim credit on all wages paid (based on average full-time 2019 headcount). Large employers are still eligible, but with different value100 or fewer500 or fewer
Eligible if obtaining PPP loan?YesYes
Eligible if government instrumentality?
NoYes, if qualifications are met


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Industries Benefiting from ERC

The ERC is not limited to specific industries. Businesses should review their specific facts and circumstances to determine a reasonable basis for claiming the ERC credit. EIAG provides an initial analysis of your business structure and operations, first, and then moves forward accordingly.

EIAG is a firm that helps businesses claim the ERC. They provide an initial analysis of your business structure and operations to determine if you qualify for the credit. They then help you file the necessary paperwork to claim the credit.

The ERC is a valuable tool for businesses that have been affected by the COVID-19 pandemic. The credit can help businesses keep employees on the payroll and avoid layoffs. Here is just an example of some industries benefiting from ERC.

ERC: Employee Retention Credits for Restaurants

Restaurants

ERC: Employee Retention Credits for Hotels & Event Venues

Hotels and Hospitality

ERC: Employee Retention Credits for Art Galleries

Art Galleries

ERC: Employee Retention Credits for Retail

Retail Establishments

ERC: Employee Retention Credits for Medical and Dental

Dental and Medical Professionals

ERC: Employee Retention Credits for Childcare & Behavior Centers

Childcare & Behavior Centers

EIAG's Areas of ERC Specialization

ERC for Nonprofits

Finding Payroll Retention Tax Credits

EIAG understands the pandemic impacted many nonprofits. Nonprofits had to modify the programs offered to the constituents they serve. Nearly all in-person meetings and fundraising events were canceled. It is possible that nonprofits received more donations during the pandemic; however, due to EIAG’s expertise and knowledge of the ERC, our team has successfully reviewed factors that determine a reasonable basis for a number of nonprofits to claim the ERC.

To learn more about how EIAG works with nonprofits, please watch our podcast, featuring ERC expert Liz Pierson. 

ERC for Apartments

ERC for Cash Relief from the Moratorium

EIAG has been an expert at helping apartment owners qualify for the ERC program. Many apartment owners, especially in the sunbelt states, continued to add properties to their portfolios and improved their revenues. However, there was a Federal Eviction Moratorium that impacted all apartment owners across the country, giving businesses in this industry a reasonable basis for claiming the ERC. EIAG has worked with some of the largest apartment owners in the country.

ERC for Manufacturing

ERC for Essential Workers

Many manufacturing companies in the United States deemed themselves ineligible because they employed “essential workers.” However, most manufacturing companies had to implement additional sanitation measures, shift staggering, and daily employee surveillance. These required tasks caused a temporary shutdown of operations and more than nominal impact on operations, giving businesses in this industry a reasonable basis for claiming the ERC.

ERC for Schools

ERC for Disruptions and Interruptions

Nearly all schools had their physical environment shut down and had to change the delivery of their content and how they interfaced with staff and students. Operationally, many school programs were temporarily canceled or modified due to COVID-19 measures. Some states had stricter mandates than others.

Most school events such as extracurricular activities, sports, recitals, theater presentations, debates, and competitions were modified or canceled altogether. Testing requirements and classroom seat time were waived by state education departments. At the college level, many classes and labs that required in-person learning were postponed or moved online. Other operational changes were required, such as limited occupancy at administrative offices and other locations throughout campuses.

EIAG has submitted applications on behalf of dozens of schools and learning institutions to help them qualify for the ERC, even when tuition may have remained unaffected, by demonstrating that government orders had more than a nominal impact on their operations.

Federal Laws Effecting the ERC

The U.S. Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that included a special government tax credit called the Employee Retention Credit (ERC). The ERC has been amended three separate times after it was originally enacted as part of the CARES Act in March of 2020 by the Taxpayer Certainty and Disaster Relief Act of 2020 (Relief Act), the American Rescue Plan (ARPA) Act of 2021, and the Infrastructure Investment and Jobs Act (IIJA). These amendments include changes to eligibility for businesses receiving one or more Paycheck Protection Program (PPP) loans.

Among several other enhancements, the Relief Act increased the credit available to 70% for wages paid during eligible 2021 calendar quarters. This includes employer paid health insurance costs. The credit covers a maximum of $10,000 in qualified wages paid per quarter per employee.

Title VI—Other Provisions, § 80604 of the Infrastructure Investment and Jobs Act affects the termination of ERC for employers experiencing closure due to Covid-19. Part of these changes included moving the deadline from January 1, 2022, to October 1, 2021.

The only exception to the deadline change as a result of the IIJA is for Startup Recovery businesses. Those businesses remain at the original January 1, 2022 deadline. Gross receipts reduction and business closures were also removed from the qualifications of recovery startups.

By removing the 4th quarter of 2021, most businesses suffer a severe impact. This includes reducing the maximum amount of credit those businesses receive from $28,000 to $21,000.


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ERC Advance Payments Ended

The option for employers to receive ERC advance payments from the IRS has ended. ERC advance payments are no longer available, and the ERC must now be claimed retroactively on a business's tax return. 


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Get Your Employee Retention Tax Credit in 2022

The Employee Retention Credit (ERC) is a complex tax credit with numerous amendments, exemptions, and qualifying factors. It can be difficult to determine whether or not your business qualifies for the ERC, and making a mistake could result in IRS penalties.

EIAG can help you navigate the ERC and determine if your business is eligible. We will analyze your facts and circumstances, review your records, and answer all your questions. We can also help you file for ERC refunds for 2020 and/or 2021.

Here are some additional benefits of working with EIAG:
● We have a team of experienced tax professionals who specialize in the CARES Act and the ERC,
● We have a proven track record of helping businesses claim the ERC,
● We offer a free consultation to discuss your eligibility for the ERC,
● We can help you file for ERC refunds for 2020 and/or 2021.

Contact EIAG today to learn more about how we can help you with the ERC.


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Get up to $26,000
per employee

Was your business impacted by COVID?
Contact to discover if your business may be eligible for ERC.

EIAG's Employee Retention Credit Methodology

EIAG’s ERC experts are driven to understand your needs from the first meeting. Our ERC Methodology for guiding clients through the Employee Retention Credit application process is based on years of experience asking the right questions to get the highest possible benefit. At EIAG, we guide our clients through a four-step process that helps us determine a reasonable basis for claiming the ERC eligibility and to apply for maximum payroll credits.

1

Pre-Qualification

erc analysis

Client and EIAG review certain facts and circumstances to determine eligibility or a reasonable basis for claiming the ERC.
2

Execution

erc notices

● If it appears your business has a reasonable basis for applying for the ERC, EIAG will gather specific company information and documentation,
● EIAG begins calculation process,
● Verifies that all programs can work together to maximize credit and assure “double-dipping” is not occurring. Especially important for PPP 1 and 2 participants. 
3

Necessary Forms and Applications

erc deadlines

Verify all forms are completed to secure incentives before ERC Deadlines.
4

Award

erc credits

● Client receives benefit, and EIAG only invoices for services after client receives benefit,
● Offer a no cost analysis of other grants and tax credits that may be a good fit for your business.

EIAG's ERC Related Services

  • Verify if applicant is eligible for other Covid Relief programs or different Federal, state or local grants and credit programs.
  • Validate and document ERC eligibility and/or reasonable basis for claiming the ERC.
  • Accurately calculate your ERC credits.
  • Properly categorize qualified wages for the PPP and the ERC, including group health benefits to maximize credit.
  • Maintain compliance with program rules and regulations.
  • Provide audit-support documentation.

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ERC Submission Deadlines

Businesses have three years to retroactively claim the Employee Retention Credit (ERC) on taxes paid during the pandemic. There are two deadlines to submit your ERC claim:
● For all quarters of 2020, the ERC deadline is April 15, 2024,
● For all quarters of 2021, the ERC deadline is April 15, 2025.

The April 15 tax deadline applies to the previous year’s taxes (i.e. the deadline for tax year 2022 falls on April 15 of 2023).

The U.S. Congress can also choose to end the ERC at any time. That’s why it’s critical to file your amended payroll tax return claiming the ERC as soon as possible.


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The Application Process

If you are looking for the Employee Retention Tax Credit (ERC/ERTC) application, you will not find it because there is no application. Instead, there are specific IRS forms that must be used to claim the credit.

The following forms are required to claim the ERC/ERTC:
● Employer’s Quarterly Federal Tax Return Amendment, Form 941-X,
● Employer’s Quarterly Federal Tax Return Amendment worksheets,
● Reporting Agent Authorization, Form 8655,
● PPP 3508 forgiveness application, when applicable.

In addition to the required forms, there are also rules and regulations, calculations, and changes to be aware of when claiming the ERC/ERTC.

For example, businesses that received a Paycheck Protection Program (PPP) loan were initially ineligible for the ERC/ERTC. However, this rule was changed in the American Rescue Plan Act of 2021. Now, businesses that received a PPP loan may be eligible for the ERC/ERTC, but only if they meet certain requirements.

The ERC/ERTC is a refundable tax credit, which means that it can be used to offset your tax liability or refunded to you if your tax liability is zero. The amount of the credit depends on a number of factors, including the number of employees you have, your qualified wages, and your decline in gross receipts.

To claim the ERC/ERTC, you will need to file an amended Form 941 with the IRS. The deadline to file for the ERC/ERTC is April 15, 2024. However, it is important to note that the IRS has the discretion to extend this deadline.


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ERC for Nonprofits


Meet Liz Pierson, ERC Nonprofit coordinator at EIAG. In this video, Liz talks about ERC for nonprofits and why it's worth looking into.

ERC for Nonprofits
EIAG JOURNAL

ERC/ERTC: Employee Retention Credits in the News

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