How Essential Businesses Can Qualify for the Employee Retention Credit

As the pandemic continues to impact businesses, many are struggling to keep their doors open. To help businesses weather the storm, the government has implemented various relief measures, including the Employee Retention Credit (ERC). However, many essential businesses are unaware that they may qualify for this credit. In this blog post, we’ll explore the ERC and how essential businesses can take advantage of it.
 

Introduction

The Employee Retention Credit is a refundable tax credit that was implemented as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. It was designed to help businesses keep their employees on payroll during the pandemic. Initially, the credit was only available to businesses that were fully or partially suspended due to government orders. However, the credit was expanded to include essential businesses that experienced a significant decline in revenue.
 

What is the Employee Retention Credit?

The Employee Retention Credit is a tax credit that allows eligible businesses to claim a credit of up to $7,000 per employee per quarter for wages paid between March 12, 2020, and December 31, 2021. The credit is calculated as 50% of qualified wages up to $10,000 per employee per year.

 

Who Qualifies for the Employee Retention Credit?

To qualify for the Employee Retention Credit, a business must meet one of two criteria:

1. The business was fully or partially suspended due to government orders related to COVID-19, OR

2. The business experienced a significant decline in gross receipts, which is defined as a decline of more than 20% in gross receipts for a calendar quarter compared to the same quarter in 2019.
 

 

ERC Calculation

My Business is Essential, Can I Still Qualify?

Yes, essential businesses can still qualify for the Employee Retention Credit if they meet the criteria mentioned above. Many essential businesses were not fully suspended due to government orders, but they may have experienced a significant decline in revenue. It’s important for essential businesses to understand that they may be eligible for this credit and should consult with a tax advisor to determine their eligibility.
 

Essential Business

How to Calculate the Employee Retention Credit

To calculate the Employee Retention Credit, eligible businesses can claim a credit of up to 50% of qualified wages paid to each employee, up to a maximum of $10,000 per employee per year. The credit is calculated on a quarterly basis and can be claimed on the employer’s federal payroll tax return. It’s important to note that wages paid with forgivable Paycheck Protection Program (PPP) loan proceeds are not eligible for the ERC.  

Real-Life Scenarios

Here are two real-life scenarios that demonstrate how the Employee Retention Credit can benefit businesses:

Scenario 1: ABC Company is an essential business that experienced a significant decline in revenue due to the pandemic. In Q2 2020, the company had a gross receipt of $100,000, compared to $150,000 in Q2 2019. ABC Company can claim a credit of up to $5,000 per employee per quarter for wages paid in Q2 2020.

Scenario 2: XYZ Company is a restaurant that was fully suspended due to government orders related to COVID-19. During the suspension, the restaurant paid wages to its employees to clean and maintain the premises. XYZ Company can claim a credit of up to $7,000 per employee per quarter for wages paid during the suspension.
 

Conclusion

The Employee Retention Credit is a valuable tax credit that can help eligible businesses keep their employees on payroll during the pandemic. Many essential businesses may be unaware that they qualify for this credit, but it’s important to understand the criteria and consult with a tax advisor to determine eligibility. By taking advantage of the Employee Retention Credit, businesses can benefit from significant tax savings and continue to support their employees.

Schedule a no-obligation, no cost call with the professional experts at Occams to help drive solutions for your business. 

Sources and Citations

1.IRS. “Employee Retention Credit.” https://www.irs.gov/coronavirus/employee-retention-credit  

2. IRS. “COVID-19-Related Employee Retention Credits: How to Claim the Employee Retention Credit FAQs.” https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-how-to-claim-the-employee-retention-credit-faqs  

3. SBA. “Coronavirus Relief Options.” https://www.sba.gov/funding-programs/loans/coronavirus-relief-options 

FAQ

What is the Employee Retention Credit?

The Employee Retention Credit is a refundable tax credit that allows eligible businesses to claim a credit of up to $7,000 per employee per quarter for wages paid between March 12, 2020, and December 31, 2021. 

Who qualifies for the Employee Retention Credit?

To qualify for the Employee Retention Credit, a business must meet one of two criteria: the business was fully or partially suspended due to government orders related to COVID-19, or the business experienced a significant decline in gross receipts. 

Can essential businesses qualify for the Employee Retention Credit?

Yes, essential businesses can still qualify for the Employee Retention Credit if they meet the criteria mentioned above. 

How do I claim the Employee Retention Credit?

The Employee Retention Credit can be claimed on the employer’s federal payroll tax return. Eligible businesses can claim a credit of up to 50% of qualified wages paid to each employee, up to a maximum of $10,000 per employee per year.