The Employee Retention Credit ERC may be better than PPP or EIDL. It’s available to business owners who have W2 employees on the books. Currently, up to $26,000 in a refundable tax credit per employee is possible, so read on to get all of the information about the Employee Retention Credit including who is eligible, how to apply, and when you can expect your ERC tax credit.
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What is the Employee Retention Tax Credit?
Stimulus packages passed during the pandemic made money available to business owners, including forgivable PPP Loans and EIDL Advances and Loans. However, not many people know about the Employee Retention Tax Credit. Honestly, I think that’s because when people hear the word “taxes” they get confused and want to tune out.
In March of 2020, the U.S. government introduced the Employee Retention Tax Credit. Around that same time, many business owners were being told to close up shop, or they were partially shut down and had to let employees go due to government mandates. Still, some tried to keep employees on the books paying them even though they weren’t working.
To reward business owners for retaining employees, the government created the Employee Retention Credit to give businesses up to $26,000 per employee in a refundable tax credit for keeping their W2 employees on the books.
Let’s do some simple math – if you have a business with 10 employees and you qualify for the ERC tax credit, then you can potentially receive up to $260,000 back to your business’s bottom line simply because you filed the right paperwork for a program that many still don’t know exists.
This is NOT a loan. No, the money isn’t conditional nor does it have to be used a certain way. Also, there’s no cap on funding.
The message all business owners need to understand is that the Employee Retention Credit ERC is worth looking into if you have W2 employees. Otherwise, you’re leaving money on the table.
Related video content: How to Apply for the Employee Retention Credit
Who is Eligible for the Employee Retention Credit?
Cut yourself some slack if you haven’t heard about the Employee Retention Credit because when it was first introduced there were tons of restrictions. For example, you couldn’t claim ERC and get PPP initially. However, the rules have changed many times, and now that is no longer the case.
If you got PPP, you can still apply for the ERC tax credit.
I’m not going to make it sound like it’s simple to understand, but it is as easy as filing some qualifying documents with the IRS and then letting them catch up with the backlog.
By the way, ERC isn’t only for “essential” businesses. Eligibility does NOT depend on your zip code nor area code. ERC is available to nearly all businesses with W2 employees who were impacted by COVID-19.
The IRS guidelines are over 200 pages long and can be overwhelming to understand if you are eligible for the Employee Retention Credit and how much money you’re going to get. That’s why I researched and partnered with ERC Specialists who are dedicated to helping small business owners find and understand these tax credits.
After vetting them and speaking with their CEO, these ERC Specialists help with all the proper paperwork in a timely manner, and it’s no upfront cost to you. If you get the tax credit, then they charge a flat fee.
How Do I Know If I Qualify for Employee Retention Credit?
Let’s dive into the requirements of what makes you eligible for the Employee Retention Credit and a few things that might disqualify you depending on how your business is setup.
There are two criteria for determining if you qualify for the Employee Retention Credit. You only need to meet one of the following to qualify:
- If your business was impacted by government mandates due to COVID-19 shutdowns: If at any time during 2020 or 2021 your company had to close down or reduce business operations (for instance if you own a restaurant that could only be at half capacity) then you probably qualify for the ERC.
- You had a reduction in gross receipts in 2020 or 2021 compared to 2019: Another way to qualify for ERC is to compare each quarter’s gross receipts for 2020 or 2021 to your gross receipts in that same quarter for 2019.
If you had at least a 20% reduction in your gross receipts for any quarter in 2021 compared to the same quarter in 2019, then you qualify for that entire quarter. For 2020 gross receipts, they’re looking for a 50% reduction in gross receipts compared to 2019. Again, this goes quarter by quarter for 2020 beginning on March 13, 2020.
If you’re not sure if you meet the gross receipts reduction qualification, then you most likely can qualify if your business was partially or fully shutdown at some point due to government mandates.
To sum it all up, for 2020 you have the potential for an ERC of up to $5,000 per W2 employee. For 2021, you can get up to $7,000 per employee per quarter. It is important to note that new legislation passed in November 2021 states that ERC is no longer available for Q4 of 2021.
Therefore, if you qualify for ERC for all three quarters in 2021, then that’s up to $21,000 in a tax credit per employee for 2021. Adding that to the $5,000 available per employee for 2020, and you can potentially get up to $26,000 per employee through the ERC tax credit.
How Long Does it Take to Get an Employee Retention Credit Refund?
Right now, the IRS has a lengthy backlog, so getting the ERC may take 4-6 months. Yes, that’s a long time – but eventually a check arrives and it’s yours to use for your business.
Are There Any Cons to the ERC? Who Is Not Eligible for the Employee Retention Credit ERC?
Because we are talking about a tax credit – of course, there are nuances. I mentioned earlier that ERC might be more beneficial than PPP. Yes, you’re allowed to get both ERC and PPP, but there’s no double dipping of the funds. This means that if you used PPP to pay your employees one quarter, then you’re not going to qualify for ERC during that quarter.
You can’t double dip with PPP funds and ERC funds at the exact same time for the same purposes. That being said, there is some play with how PPP and ERC can work together, and that’s where the expertise of the ERC Specialists becomes so valuable. For example, if a portion of your PPP was used for approved expenses rather than payroll, then you can still claim ERC because those PPP funds were not used for payroll.
Unfortunately, ERC is not available to sole proprietors nor independent contractors who file a Schedule C on their taxes. Also, more than 50% owners along with their family member employees are not allowed to get the Employee Retention Credit in most cases.
You might also like: How to Pay Yourself PPP Loan Self-Employed
If you’re a business owner with W2 employees, then you may qualify for the ERC tax credit. It’s entirely possible that your accountant or payroll company hasn’t even made you aware of this program yet. However, If you were affected by the government mandated shutdowns, if you kept employees on the books, if you had any sort of gross receipt reduction in 2020 or 2021, then you may qualify for up to $26,000 per employee in ERC tax credits.
My goal is to teach you about ERC and get you in touch with the people who know all the magic words to say and all the right paperwork to file to help get you this money. The sole purpose of ERC Specialists is to look at your paperwork, file it with the IRS, and get you this money.
The IRS backlog for getting paid these tax credits is at least 4-6 months. I anticipate those wait times to increase, so you’ll want to get started sooner than later. I am available to book for a one-on-one private call if you need a consultant or help answering the ERC qualifying questions.
Overall, if your business was impacted during the COVID-19 pandemic and you are eligible for ERC funds, then the work you put in now will be well worth it in the future.
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As always, I’m Rich and until next time.
“TeachingMillionaires.com has partnered with CardRatings for our coverage of credit card products. TeachingMillionaires.com and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered. I am not a financial advisor. The information I share is for educational purposes only and shouldn’t be considered as certified financial or legal advice. It is imperative you conduct your own research. I am sharing my opinion only.”