Employee Retention Credit Qualifications for Eligible Employers
Disaster Loan Advisors
8 min read
CHICAGO, IL / ACCESSWIRE / July 13, 2023 / Employers who have experienced a significant decline in revenues or had been subject to government-mandated shutdowns and disruptions to business operations due to the COVID-19 pandemic may be eligible to claim the Employee Retention Tax Credit (ERTC). This valuable refundable IRS tax credit can help businesses that suffered during the previous 2020 and 2021 business tax years. There are specific updated and current qualifications that must be adhered to, in order for companies to qualify for the ERC credit.
A business owner researching whether their company qualifies for the Employee Retention Tax Credit. Image Credit: Konstantinraketa / 123rf.
"Presently, the ERC tax credit can provide much-needed financial relief to make up for the past business disruptions and losses that may have occurred during the challenging times from 2020 and 2021. Good news is that eligible businesses can still claim the tax credit in 2023, 2024, and 2025," said Marty Stewart, Chief Strategy Officer (CSO) with Disaster Loan Advisors (DLA). DLA has assisted over 700+ companies with their ERC / ERTC Tax Credit claims, by-the-book per current IRS rules and guidelines.
Employee Retention Credit Key Takeaways for Eligible Employers to Qualify:
Employers must have experienced either a full or partial suspension of their operations due to a government order related to COVID-19 or a significant decline in gross receipts.
If the employer has more than 100 full-time employees (in 2020) or more than 500 full-time employees (in 2021) , they can only claim the credit for wages paid to employees who are not working due to COVID-19 related circumstances.
If they have less than 100 (in 2020) or less than 500 (in 2021), then they can claim the credit for all employees, regardless.
The credit is equal to 50% of qualified wages paid up to $10,000 per employee, for a maximum credit of $5,000 per employee for the 2020 tax year.
The tax credit is equal to 70% of qualified wages paid up to $10,000 per employee, for a maximum credit of $7,000 per employee, per quarter, for the 2021 tax year. Up to $28,000 maximum.
Understanding Employee Retention Credit: What It Is And How It Works
The Employee Retention Credit (ERC) is a refundable tax credit designed to help businesses affected by the COVID-19 pandemic. Providing financial relief directly to eligible employers encourages them to retain their workforce during economic uncertainty.
The ERC works by offsetting certain employment taxes that eligible employers would otherwise owe. For qualified wages paid during 2020, the credit amounts to 50% of up to $10,000 per qualified employee for the entire year, which translates into a maximum credit of $5,000 per worker.
Determining which wages fit within the "qualified" category is the key component of calculating your company's ERTC tax credit. Understanding how the Employee Retention Credit functions can be immensely beneficial as it enables businesses like yours to capitalize on potentially significant tax savings during these challenging economic times.
COVID-19 Impact And Eligibility Criteria For ERC Tax Credit
The COVID-19 pandemic has significantly impacted business operations across various industries. For example, restaurants and retail stores experienced reduced foot traffic due to widespread stay-at-home orders. Many establishments switched to online sales or delivery services to maintain revenue streams during this challenging time.
In contrast, some businesses found success pivoting their offerings; distilleries began producing hand sanitizer while clothing manufacturers shifted toward making masks and other personal protective equipment (PPE).
Continuation of Employee Wages And Benefits
One of the primary objectives of the Employee Retention Credit (ERC) is to enable employers to maintain continuity in employee wages and benefits during periods of economic hardship caused by the COVID-19 pandemic.
For example, a small business owner who has faced a significant decline in gross receipts can apply for ERTC while ensuring their workforce remains secure with stable incomes and access to crucial benefits. This approach helps minimize disruption within organizations and individual lives while fostering an environment where companies maintain productivity amidst challenging circumstances.
As a result, eligible employers who prioritize the welfare of their employees benefit from financial support through this valuable tax relief program.
Comparison of Gross Receipts Between 2020 And 2019
To determine eligibility for the Employee Retention Credit (ERC), it is essential to compare the gross receipts of your employer's business operations between 2019 and 2020. This comparison will help you understand if your business has experienced a significant decline in gross receipts, making you eligible for the ERC credit.
The following information illustrates the comparison criteria for different quarters in 2019 and 2020:
In this example, the business is eligible for ERC in the first quarter, second quarter and fourth quarter, as the percentage decline in gross receipts is more than the required threshold of 50% for 2020 or 20% for 2021. Comparing your business's gross receipts between 2019 and 2020 will enable you to accurately determine your Employee Retention Tax Credit eligibility.
Eligibility For Businesses of Varying Sizes
The Employee Retention Credit is available for eligible employers of any size, ranging from small businesses to larger corporations. However, different rules may apply depending on the number of employees a business has.
For example, if a company had an average of 500 or fewer full-time employees in 2019, it can claim the credit for all wages paid during eligible periods. On the other hand, if a company had more than 500 full-time employees in 2019, it can only claim the credit for wages paid to employees not providing services due to a full or partial suspension of operations or a significant decline in gross receipts.
It's also worth noting that startups and newer businesses may also be eligible for special rules under the IRS ERC credit program. Specifically, recovery startup businesses (those with annual gross receipts less than $1 million) can qualify for a maximum increased credit per employee per quarter compared to most eligible employers.
IRS Guidance and Deadlines for ERTC Applications and Filing ERC Tax Credit Claims
The IRS has remained diligent in issuing warnings about ERTC scams, and advises businesses to stay protected. They further cautioned to avoid paying an ERC percentage or contingency fee based on your employee retention credit refund amount.
For 2023 ERC updates and beyond, eligible employers and businesses ERC deadline isn't until April 15th, 2024, for retroactively filing ERC credit claims for eligible quarters from the 2020 tax year. April 15th, 2025, is the deadline to claim the tax credit for eligible quarters from the 2021 tax year.
About Disaster Loan Advisors™ Employee Retention Credit (ERC) Services
Disaster Loan Advisors™ (DLA) is a trusted team of financial tax professionals and Employee Retention Credit (ERC) consulting specialists dedicated to saving businesses from lost sales, lost customers and clients, lost revenue due to financial and economic harm caused by the COVID-19 / Coronavirus disaster, Delta and Omicron variants, and other recession and inflation downturns in the economy.
Having worked with over 1500+ business clients navigate the SBA Economic Injury Disaster Loan (EIDL), Paycheck Protection Program (PPP), and Restaurant Revitalization Fund (RRF) programs, DLA further refined its expertise in the ERC Tax Credit IRS program having assisted more than 700+ companies with their ERC Claims. Assisting ownership groups with multiple business entities, multiple location business owners, and other complex situations that require an expert tax and accounting strategist to be brought in to assess the situation and create the most strategic path forward.
DLA further specializes in another key pandemic-era SBA / IRS program where business owners are leaving a lot of relief fund money on the table. It is the often misunderstood and confusing Employee Retention Tax Credit (ERC) / Employee Retention Tax Credit (ERTC) program whereby company owners and partners can retroactively receive up to $26,000 to $33,000 back for each W-2 employee they had on payroll for the 2020 and 2021 tax filing years. Done correctly, these tax credits or cash refunds can be claimed retroactively for up to 3 years.
It's encouraged that business owners obtain professional assistance in going through the complex 941-X amended filing process to help your company maximize the full value of the ERC Credit Program, while staying safe and compliant within the complex IRS rules and regulations for claiming the ERC Credits.
DLA doesn't charge a percentage (%) of your ERC refund like many companies are charging. Instead, DLA works on a reasonable professional flat-fee basis. If you are looking for an ERC company that believes in providing professional ERC services and value for small business owners, in exchange for a fair, reasonable, and ethical fee for the amount of work required, Disaster Loan Advisors is a good fit for you.
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