What is the ERC and How do I Qualify?
Originally created by the Federal Government as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March of 2020, the Employee Retention Credit (ERC) was designed as part of a larger relief package to help businesses offset some of the cost of employing staff amidst the impact of the pandemic. Now amended three separate times, the ERC provided tax credits to businesses, not for profits, colleges or universities, hospitals and similar entities for qualified wages and health employment costs in 2020 and, for most through September 30th, 2021.
The rules for who qualifies for ERC and what wages count for qualification are complicated and changed over the multiple revisions to the Act. For a complete review and to determine more specific qualifications please complete the ERC Digital eligibility and estimator.
Here are some basic facts around eligibility:
Any employer operating a trade, business or a tax-exempt organization, but not governments and their agencies. That was amended to include certain governmental organizations like colleges or universities whose principal purpose is to provide medical or hospital care.
- How do you qualify?
The employer must have had full or partial suspension of operations due to government order due to COVID-19 or a “significant decline in gross receipts” (defined as 50% less than the same quarter in 2019). There is an exemption from the decline in gross receipts qualification if you are a “recovery startup business,” starting business after February 15, 2020 and with gross receipts under one million dollars for the 3 year period preceding startup.
- Which wages qualify?
For 2020, 50% of qualified wages up to $10,000 per employee for the year including certain healthcare expenses.
For 2021, 70% of qualified wages (up to $10,000 per employee per calendar quarter).
- Are there other qualifications or limitations?
In short, yes – several. It is a complex process to file, amend and recalculate paid and adjusted taxes paid. To complete the process simply and easily, the ERC Digital submission tool can help.
- What is the process to claim ERC?
Businesses who are eligible can claim the ERC by filing Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. This allows employers to claim the credit for 2020 and 2021 eligible quarters if they have previously filed. To simplify and speed the process, ERC Digital offers an online tool and professional guidance that enables faster, easier filing. Find out more at www.ercdigital.com/about.
If you’re interested in exploring the direct IRS resource for ERC you can find it here:
Employee Retention Credit - 2020 vs 2021 Comparison Chart | Internal Revenue Service (irs.gov)