What Is The Employee Retention Credit (ERC) and How Can You Benefit From It?

It’s tax filing season, and our clients are working hard to close out their 2022 filings. However, there’s a potentially huge payroll tax credit some businesses are missing – and we want to make sure that doesn’t happen to any of our clients! That tax credit is called the Employee Retention Credit (ERC).

If you kept your team intact and on payroll through the duration of the pandemic while your business suffered, you might be eligible! We’ll explore the ERC further in this blog, including details, eligibility, and more. Keep reading or view the video below from our partner, ERC Today!

What is the ERC?

The ERC was created through the CARES Act, which was passed in 2020. Long story short, it’s tax credit designed to reward employers who didn’t lay off full-time members of their team as the economy contracted due to the lockdowns. This wasn’t an easy task for many smaller businesses, and the ERC seeks to help relieve some of that burden through a payroll credit.

Employers are able to claim an ERC of up $26,000 per employee for the 8 quarters in 2020 and 2021.

Eligibility Requirements

Not all businesses are eligible, and for employers that are eligible, not all of their employees will be. Major factors for eligibility are:

  • The business suffered some sort of closure during 2021 or 2022
  • The business had a major drop in revenue (over 50%)
  • The business paid qualified wages to full time employees during 2021 and 2022.

And, yes, employers that received funds from the Paycheck Protection Program can still be eligible for ERC relief for certain qualified wages.

Qualified Wages

The ERC defines the qualified wages outlined above as full-time worker compensation (including insurance plans). If your business paid your full-time workers, or funded their healthcare plan throughout 2021 and 2022, you are likely eligible.

Qualified wages are full-time workers’ compensation. Any businesses that paid for these wages, despite the hardship of the pandemic, are qualified employers. Qualified wages include the employee’s wages and their health plan costs.

Your ERC Credit

You should work with a qualified ERC team, like ERC Today (see link at the bottom of this post to see if you qualify)┬áto calculate how much of a credit you can receive, but if you’re interested in doing some quick napkin math, see below:

Qualified Wages Employee Retention Credit Calculation for Eligible Businesses:

  • 50% of up to $10,000 in qualified wages paid for the whole year of 2020 after March 12th
  • 70% of up to $10,000 in qualified wages paid for the first 3 quarters of 2021
  • Maximum of $26,000 in ERC per employee

Healthcare Plan Employee Retention Credit Calculation for Eligible Businesses:

  • 25% of up to $10,000 in qualified wages paid
  • Maximum of $7,000 in ERC per employee

A simple solution:

Total Qualified Wages x Either 50%(2020), 70%(2021) or 25%(Healthcare)

Note:

Your total credit cannot exceed payroll taxes withheld from your employees. Additionally, certain states have other credits or restrictions on the ERC. Consult a qualified ERC team!

How to Apply for the ERC

For our clients, we’ve made it extremely simple: just head to our partner’s ERC application page and follow the steps.

We hope you’ve found this blog helpful! Be sure to contact us if you have any questions or need any further assistance. Happy tax season!