Although the Employee Retention Credit (ERC) was put into effect in early 2020, many organizations and businesses do not realize that they can still qualify for the credit. Some, including educational institutions or other for-profit organizations, may think the nature of their business prevents their qualification, which is not the case. Then, there are startups, not-for-profit (NFP) organizations and PPP loan recipients who had previously not qualified under earlier IRS guidance but may now be eligible because of updated, enhanced tax legislation. (Note that startups qualify for the 2021 third and fourth quarters only.)
If you’re wondering whether you qualify but don’t know where to start, we compiled an easy-to-read overview to help you take that first step:
Who are Eligible Employers?
The ERC is a refundable tax credit of payroll taxes paid, which is available to eligible employers as follows:
- 2020: Up to $5,000 per employee per year
- 2021: Up to $7,000 per employee per qualifying quarter
- 2020 ERC: Employers with less than 100 full-time employees in 2019
- 2021 ERC: Employers with less than 500 full-time employees in 2019
- If you exceed these thresholds, there is another exception you can potentially qualify for.
What are the Requirements to Qualify?
Decline in Quarterly Gross Receipts: Gross receipts from an organization include all receipts from every source without reductions for any costs or expenses. This means that tax-exempt income and investment income are included. It also means that any reductions, such as the cost of goods sold, the cost of investments, or expenses of earning, raising, or collecting funds, are not subtracted from gross receipts when determining ERC eligibility. The only receipts not included are PPP loans, Shuttered Venue Operator Grants and Restaurant Revitalization Grants. We’ve designed templates to calculate if your business meets the below qualifying gross receipts criteria.
- 2020 ERC: Greater than 50% decline in any quarter of 2020 compared to the same quarter of 2019
- 2021 ERC: Greater than 20% decline in any quarter of 2021 compared to the same quarter of 2019
Full or Partial Shutdown Due to a Governmental Order: As this is a bit of a gray area, any qualification under the shutdown rules will need to be documented thoroughly.
- Organizations automatically qualify if they experienced a full, mandated shutdown. In this case, qualification occurs for the days in which the shutdown was in effect.
- If an organization was shut down partially for any period, its impact on capacity and total employee hours need to be analyzed. We can help you work through this analysis. Consider the following questions:
- Did capacity restrictions limit commerce, travel or group meetings (for commercial, social, religious or other purposes) in a “more than nominal way?”
- Did you see a decrease in total employee hours by at least 10% compared to 2019? This percentage is usually needed to satisfy partial shutdown.
This is a great opportunity still available to many businesses. We encourage you to speak to our professionals to learn more about taking advantage of it. If it is determined that you qualify, we perform all the necessary ERC calculations and prepare the amended payroll tax returns needed in order to claim the refund(s).
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