Getting started with ERC Digital
Getting Started with ERC Digital
If you're an employer seeking a better understanding of the Employee Retention Credit (ERC), look no further! This guide explains eligibility and credit estimation and filling out the application itself. If you still need assistance, please email our ERC Digital Processing Team at ercsupport@ercdigital.com or call our Tax Specialists at (888)-230-4576.
Understanding ERC Eligibility
When it comes to the Employee Retention Credit, one of the most common questions we hear is “Is my business eligible?” The great thing is that the vast majority of small businesses can answer this question themselves! An employer is eligible to claim the ERC if they experienced one or both of these:
- A significant decline in gross receipts (We walk through details of what a ‘significant decline’ means below)
- A full or partial closure due to a government order
Significant Decline in Gross Receipts
For tax year 2020, if your business experienced a 50 percent drop in gross receipts when comparing a quarter in 2020 with the corresponding quarter in 2019 then you had a ‘significant decline’
The 50% threshold dropped beginning in 2021. In 2021, businesses must have seen more than a 20 percent drop in gross receipts in Q1-Q3 compared to the same quarter in 2019. If your business has under a year of operation as of Q2 2020, the IRS allows the use of gross receipts for the quarter in which you started business as a reference for any quarter in which you do not have 2019 data.
Based on how the math for these thresholds often works out, a business that qualifies in a quarter almost always qualifies in the following quarter, as well, even if that following quarter doesn’t meet the gross receipts loss requirement on its own.
Government Order Related Shutdowns
A business is eligible for the ERC if they were forced to fully or partially suspend operations or reduce business hours because of a government issued COVID-19 order. The IRS has placed some restrictions on which businesses can qualify through this path. Businesses which would not qualify through this method are:
- Those considered essential, unless they have supply of critical material/goods disrupted in a manner that affects their ability to continue to operate.
- Businesses which closed physical locations but were able to continue their operations through telework.
Eligibility for ERC can seem confusing. We understand how complicated it may seem. To help explain it a bit more, we put together a few infographics to illustrate common eligibility scenarios.
What if I received a PPP loan and it was forgiven? Am I still eligible?
Yes. The new legislation allows businesses that received a loan under the Paycheck Protection Program (PPP) to qualify for the ERC tax credit. However, the credit can only be applied to wages that are not forgiven under PPP.
How does the IRS apply my credit?
The ERC is applied to an employer’s portion of the employee’s Social Security taxes. Because it is fully refundable, the credit acts as an overpayment and will be refunded after subtracting an employer’s share of those taxes. If your credit exceeds your total liability of the portion of Social Security taxes in any eligible quarter, the excess would be refunded to you.
What action do I have to take?
In order to claim the new Employee Retention Credit (if eligible), an employer calculates their total qualified wages and the related health insurance costs for each quarter, and subtracts that amount from their deposit on Form 941, Employer’s Quarterly Federal Tax Return.
Because most employers have already filed their taxes for 2020 and 2021, it's important to note the IRS allows businesses to claim this credit through 2024. In order to do this, you would first need to fill out Form 941-X.
Your head is probably spinning right now and that’s normal. The good news is this is where ERC Digital comes in. We automate and streamline the eligibility, wage and payroll data and we partner with a Big 4 accounting firm to perform the calculation of the ERC. That way you can rest easy.
Just remember, your business may not be eligible if you received other tax credits or participated in other government relief programs.
There are a few more restrictions to keep in mind, but all you must do is omit these from the data you provide the ERC Digital Processing Team or on future tax filings after you complete the ERC application.
- Wages for the ERC cannot include any wages that received an employer tax credit for paid sick and family leave under the Families First Coronavirus Response Act.
- Wages counted for this credit can’t be counted for the credit for paid family and medical leave under section 45S of the Internal Revenue Code.
Employee wages are ineligible for ERC if:
- the employee is a family member of the owner,
- own 50 percent or more of the company, and /or
- the wages are being used to claim the Work Opportunity Tax Credit (WOTC) under section 51 of the Internal Revenue Code.
Next Steps
Check out the ERC Digital eligibility and estimation process now and get all the benefits of improved accuracy, a faster process and the ability to track your amendment through our exclusive arrangement with Tax Status.
If you already know you’re eligible, start an application using the ERC Digital tool today.
The most important thing to remember is that we’re here to assist you! You can call or email our ERC Digital Processing Team between 9:00 AM and 8:00 PM EST at ercsupport@ercdigital.com or 1-888-230-4576.
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