Since the onset of the COVID-19 pandemic, businesses have been hard-hit by government orders, reduced foot traffic, absenteeism, and supply chain issues. The CARES Act has sought to offer some relief to struggling businesses still reeling from the effects of the pandemic. One such lifeline is the Employee Retention Credit (or ERC), a substantial tax credit available to employers who qualify.
But how does the ERC work, and how can you determine if you qualify? If this is all new to you, don’t panic. We’ll take you through the steps.
What Is an Employee Retention Credit?
As initially defined by the IRS, the Employee Retention Credit is “a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021.” The credit caps out at $10,000 per employee for wages paid during the prescribed period.
It is a refundable credit that you, as a business owner, may claim on qualified wages paid to employees. The credit may be claimed against 50 percent of qualified wages paid, up to $10,000 per employee annually for wages paid during the last 3 quarters of 2020.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020, extended the ERC for wages paid for the first three quarters of 2021 and was increased to a maximum tax credit of $7,000 per quarter per employee.
How Is Eligibility for the ERC Determined?
In order to qualify for the ERC, eligible employers will have experienced either of the following:
A requisite decrease in revenue for any eligible quarter in 2020 or 2021.
The revenue decline test is different, depending on the years covered. For example, the 2020 revenue decline must be 50% or greater compared with 2019. For 2021, however, the revenue decline must be 20% for any quarter as compared with that same quarter in 2019. Certain subtleties in the regulations that may allow qualification in a quarter if the prior quarter qualifies.
What if your business was affected by COVID but was not in existence in 2019? The provisions of the credit have you covered. If your business was started on or after February 15, 2020, you may still be eligible for the ERC if you qualify as a Recovery Start Up Business. Businesses not in existence in 2019 may be permitted to assess any decline in gross receipts by comparing the calendar quarter in 2021 gross receipts to those from the same calendar quarter in 2020.
Your business suffered either a full or partial suspension under government orders.
In scenario two, the test is a bit more complex. It is your responsibility as an employer to examine the government orders for all your business locations to determine whether any part of the business was wholly or partially suspended during the prescribed period. The credit applies only for the portion of the quarter the business is suspended, not the entire quarter.
What Documentation Do You Need to Provide?
To better determine your eligibility, we ask that you take our quick and easy survey to get started. It only takes a few minutes, and your responses will assist us in providing the personalized service you deserve.
Some documents that will be helpful (but not necessary) to bring to your first meeting are listed below.
- Summary of quarterly revenue (Employer Quarterly Tax Return, Form 941)
- Payroll tax returns
- Employee pay records (including paid by date)
- Location of your business and employees
- Description of your business
- Any detailed wage information used for a PPP loan and loan forgiveness
- Records of any workers on a reduced schedule
Can You Still Qualify for an ERC Now?
Interestingly, the answer is yes. Although the program expired as of September 30, 2021, businesses can retroactively apply for the credit until the statute of limitation expires. When one considers the substantial tax credits that can possibly be collected, it’s easy to see why it’s important to learn if you qualify. To date, Moskowitz LLP has obtained over $10 million dollars in credits for our clients.
How Moskowitz LLP Can Help
At Moskowitz LLP, we understand the tax landscape. And we’ve built our reputation helping businesses like yours to get the most from their returns. Our tax and legal team are here to help. Our services include a secure, fast and streamlined process, managed by a team of tax professionals to determine business qualifications, submitting the claims, and maintaining compliance.
Here are just some of the ways Moskowitz LLP makes the process easier…
- Documenting your eligibility as a qualified employer
- Completing all necessary forms and paperwork
- Preparation of tax returns
- Guiding you through the process
- Helping you avoid common pitfalls
- Saving you money on your return!
Think you may qualify for the ERC but aren’t sure? Need help with documentation? Contact us today!