Many businesses are taking advantage of the Employee Retention Credit (ERC) program. All that’s required is a thorough assessment of all eligibility criteria and diligent adherence to IRS directives, but not everyone can do this. You need a suitable consultant to evaluate your eligibility criteria and get guidance on the potential tax consequences. This is why we created ProSMB Solutions: to help businesses receive the best support in maximizing their ERC refund.
First, let’s understand what the ERC program is all about and how it will benefit you through this guide.
The primary objective of the ERC was to provide financial relief to businesses that were adversely affected by the pandemic and to encourage them to retain their employees on payroll.
To mitigate the economic repercussions of the COVID-19 pandemic, the U.S. Congress approved a substantial $2.2 trillion stimulus package known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Through the CARES Act, a variety of relief funds were established to offer support to businesses and employees. Despite the past deadline of many CARES Act programs, small businesses (under 500 employees) hit by COVID-19 can still benefit from government aid, enter the Employee Retention Credit (ERC).
The ERC is a payroll tax credit given as a refund by the IRS. This credit offers reimbursements of up to $26,000 for each W-2 employee retained on the business’s payroll throughout the duration of the pandemic. Basically, you can get a potential sum of $5,000 per employee for 2020 and a maximum of $21,000 per employee for 2021.
By offering a tax credit, the government aimed to incentivize employers to keep their workers employed and avoid layoffs or furloughs, thereby supporting individuals and families who depended on their jobs for income and stability. Businesses that faced revenue declines and/or operational disruptions due to lockdowns, restrictions, and reduced consumer demand are eligible to apply for the ERC.
The unique aspect that distinguishes the ERC program from other relief programs is that it’s a tax refund, not a loan. Businesses can therefore use these funds as they choose.
Your business may qualify for the ERC based on specific criteria outlined in the tax regulations. To be eligible for the ERC, a business must meet the following requirements:
The size of the business matters. For most businesses, the ERC is available if the average number of full-time employees in 2019 was less than 500. However, there are different rules for businesses with more than 500 employees.
The size of the business matters. For most businesses, the ERC is available if the average number of full-time employees in 2019 was less than 500. However, there are different rules for businesses with more than 500 employees.
The ERC applies to qualified wages paid to employees. These wages can include not only regular compensation but also certain health plan expenses. The credit is generally calculated as a percentage of qualified wages.
Some ERC companies provide vague, incomplete, or inaccurate information about the ERC program. These companies ERC frequently fail to provide accurate explanations regarding eligibility criteria or proper methods for calculating the credit because they may not be aware of the requirements themselves. Their claims might encompass generalized assertions that imply universal eligibility for all employers, without considering the unique circumstances of each individual employer.
Many business owners and accountants have mistakenly disqualified themselves from the ERC program, believing that aspects like having a business deemed “essential” would disqualify them. Contact us to find out if you qualify.
Yes, there is. Businesses have the option to submit ERC claims for both 2020 and 2021.
Keep in mind, Congress can choose to end the program sooner, so it’s best to file as soon as possible.
The criteria for the refund calculations are different for 2020 and 2021:
By this assessment, the maximum potential for your refund is $26,000 per employee.
You can file for the ERC yourself, but a professional tax expert will help you qualify seamlessly. Also, it's important to note that the eligibility criteria for the ERC can be complex and subject to change based on evolving legislation and regulations. Hence, a tax professional or legal expert will ensure that your business meets all the necessary requirements and accurately calculate the credit. In addition, the right tax expert will also provide you with adequate documentation to support your claim should the IRS choose to conduct an audit.
The Employee Retention Credit (ERC) stands as a crucial lifeline for businesses striving to navigate the challenges posed by the pandemic. However, as with any opportunity, caution must be exercised. ERC mills or scams that promise quick fixes or guaranteed results should be avoided. To truly maximize the benefits of the ERC and ensure a successful application process, it's imperative to partner with trusted and established companies. Your business's well-being is paramount, and by staying vigilant and selecting a reputable source, you can confidently harness the advantages that the ERC offers. Read our blog here to know more.
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