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For pandemic-affected enterprises, the Employee Retention Credit (“ERC”) has become a substantial source of refundable tax benefits. Many firms that debuted in 2020 felt left out due to the program’s original regulations, which made meeting some of the eligibility criteria difficult. However, Congress has opened the way for many of these enterprises to qualify for ERC, at least for the third and fourth quarters of 2021, according to the American Rescue Plan Act of 2021 (“ARPA”).

Note:

  • This limitation was eliminated retrospectively for any employer who previously disregarded the ERC for 2020 because you secured a PPP loan. By completing IRS Form 941-X, we can claim the ERC that you are otherwise entitled to.
  • For 2020 and 2021, the Employee Retention Tax Credit is a REFUNDABLE PAYROLL TAX CREDIT. As a result, the ERC is essentially a payroll tax burden. The US government intends to finance employers by returning money to them in the form of a negative payroll tax burden, rather than through any other means. As a result, if you qualify for $100,000 in ERC credits from Q3 2020, once the appropriate 941x tax return is processed, the IRS will cut you a check for $100,000.

 

Credits: checkmatepayroll.com

How do I know if I’m eligible for the ERC?

To begin, you must employ less than 500 employees (other than yourself and members of your family).
Then you’ve either seen a drop in gross receipts or been affected by a government shutdown.

 

Credits: gusto.com

Some important FAQs

  • What time frames can be compared to determine a loss in gross receipts?

All timelines must be compared to the same quarter in the following year. So, if you’re looking at Q2 2020, you’ll need to compare it to Q2 2019. If you’re looking at the second quarter of 2021, you should still compare it to the second quarter of 2019. If your firm did not exist at the start of the same quarter in 2019, you can instead use the same quarter in 2020.

 

  • Can I claim a pay credit for one of my employees because he or she is a family member?

No. Family members are not eligible employees.

 

  • I’m a sole proprietor, am I eligible for ERC?

No.

 

  • How much ERC can I claim?

For the year 2021, you can claim up to 70% of qualifying salaries for each eligible employee, up to a maximum of $7000 every quarter ($28,000 for the year).

 

  • Can I qualify for ERC after I got PPP(Paycheck Protection Program)?

Yes, however salaries paid using PPP funding do not qualify as qualified wages. (This is known as “double-dipping,” and it is not permitted.)