IRS ERC Stimulus Funds Overview
Has your business taken advantage of the largest government ERC stimulus program of all time?
The ERC stimulus is a form of payment issued by governments to individuals and households to boost economic activity and stimulate spending during a recession or period of economic hardship.
The specific details of the ERC program, such as the amount and eligibility criteria, vary depending on if the business experienced a significant decline in revenue, decline in gross receipts, and the impact of business operations during the pandemic.
All About ERC Stimulus
The purpose of ERCs is to provide ERC tax credit to eligible employers that have been impacted by economic downturns.
It was initiated to encourage employers to retain employees or reduced business revenue. The program’s goal is to help those affected by the economic downturn maintain their standard of living and encourage them to continue spending, which in turn can help stimulate economic activity.
The Employee Retention Credit is typically issued in the form of a check or direct deposit. The amount of the payment businesses qualify for is based on several factors including a decline in gross receipts, qualified wages, wages paid, and full or partial suspension.
If your business falls under this category than you can retroactively claim the employee retention tax credit by filing amended quarterly returns using Form 941 X.
Understanding a Decline in Gross Receipts
If the company saw a fall in gross receipts of more than 20% from comparable quarters in 2019, the first, second, or third quarters of 2021 satisfy the requirement for a significant decline in gross receipts. In this calculation, the gross receipts of associated businesses must be combined.
An employer’s business must have been completely or at least substantially impacted by the pandemic and have seen at least a 50% drop in gross receipts from comparable quarters in order to be eligible for the Employee Retention Credit.
What are qualified wages for the employee retention credit?
Qualifying wages are all wages paid to employees by an eligible employer before December 1 2020 and before December 1, 2020. In businesses experiencing an adverse decline in revenues from COVID-19, workers’ wages paid will be considered qualified wages. The company can pay back up to a maximum of $16,000 per person ($11.50 is the standard) depending on salaries, medical bills, and other personal costs the business owner has already paid. ERTC is open to any company up to a maximum of 500 W-2 employees.
Was your business a victim of a full or partial shutdown?
When a governmental order has restricted the employer’s operations, the employer is considered to have partially ceased operations when it cuts operating hours.
In general, a suspension refers to a government directive that affects business hours or service capacity. An organization would be eligible under the ERC if it received a direct order to completely or partially halt operations.
Can you Claim Other Employee Tax Credits With ERC?
Typically, a double-dip is not permitted, so you cannot receive any refund for qualified wages for tax credits such as family medical. However, health care benefits are calculated into the Employee Retention Tax Credit. Originally, the ERC businesses may only claim credit for earnings incurred without the PPP forgiveness. This is now changed and the PPP can be used, but the amended claim needs to be adjusted.
Benefits of ERC Tax Credit
There are many advantages for businesses to use the ERTC program, and most don’t even realize they are eligible to claim the Employee Retention Credit. Here are some of the pluses:
One of the key benefits of ERCs is that they can provide a quick and targeted form of economic support to businesses affected by the Covid 19 pandemic governmental order to shut down or partially suspend operations.
Because the payments are targeted at businesses with W-2 employees, they can help mitigate the recession’s severity and prevent further economic damage.
Additionally, because the payments are made directly, they can help ensure that the money is spent quickly and goes directly to businesses that need it most.
Supports Business Development
Another benefit of ERC is that it can be used to support a wide range of economic activities. The payments can be used for employee payroll, building leases, inventory, or anything that can help the business survive and even thrive.
ERC Risk Management
There are also some potential drawbacks to ERCs. One potential concern is that the payments may not reach those who need them most.
For example, if the eligibility criteria are too restrictive, or if the payments are not distributed effectively, many employers may not receive the support they need.
Additionally, there is a risk that the payments may not be spent effectively and may not provide the desired economic stimulus.
History of ERC Tax Credit and the CARES Act
In March 2020, Congress passed the CARES Act, which allowed eligible businesses to claim a refundable tax credit of up to 50% of the qualified wages paid to their employees.
The maximum credit an eligible employer can receive in 2020 on qualified wages paid to any eligible employee is $5,000. This is based on the maximum amount of qualified wages that can be considered with respect to each eligible employee for all calendar quarters in 2020.
Qualified earnings were restricted to wages provided to an employee for the time the employee was not providing services owing to economic hardship if an eligible employer averaged more than 100 full-time employees in 2019.
ERC Eligibility: Who Qualifies for ERC? – Eligible Employers Services Insights
The pandemic has impacted millions of US businesses over the past few years. The Employees Retention credits are designed to support employees who lose profits during shutdowns.
The program is enacted under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help companies maintain employees in the workforce. Most business owners still need assistance understanding the ERC qualification process.
The ERC is available to business owners and businesses whose operations were temporarily suspended by a government order. The eligibility requirements for the 2020 and 2019 ERC are different.
Understanding Who Qualifies for the ERC
Employer eligibility can be determined by a decrease in net receipts for the first quarter of 2020 to the previous quarter in 2019.
Employers can select another quarter as their basis for calculating revenue for the year. Under this election, employers could determine whether to meet the reduction in gross income criteria in 2021 by comparing their gross income for the immediately preceding calendar quarter against the corresponding calendar quarter in 2019.
New Rules: Alterations to Employee Retention Tax Credit
The bill modifies the ERC, also known as the ERTC, in the ways listed below:
- The previous cap of $10,000 annually per worker is raised to $20,000 quarterly. The credit percentage is increased from 50% to 70% of eligible wages.
- In 2019, a decrease of more than 50% in gross receipts for the same calendar quarter was required to meet the gross receipts qualifying criterion for employers.
- Employers who did not operate during any calendar quarter in 2019 are afforded a safe harbor to calculate eligibility and the ERC based on their preceding quarter’s gross receipts.
- Institutions of higher education operated by states or local governments, healthcare providers, and groups with congressional charters are eligible for the tax break.
- If a Paycheck Protection Program or PPP loan is forgiven, an employer may still be eligible for the ERC concerning salaries paid with funds other than those released by the forgiveness of the loan.
- The requirement that an eligible employer’s qualified wage payments to an employee not exceed the amount the employee would have been paid had they worked for the company during the preceding 30 days has been removed.
- These benefits are also eligible for recovery startup businesses.
Extensive new rules for ERC advance payments to small businesses are incorporated, with unique considerations for seasonal and new businesses in 2019.
The measure also includes reconciliation provisions and specifies that any calendar-quarter excesses in advance payments of the credit will be subject to a tax equal to the excess amount.
Can I Claim Employee Retention Credit and PPP?
Initially, the loan on PPP was non-refundable, and a refund was not allowed. The Consolidated Appropriations Act of 2018 corrected this and enabled small enterprises to take advantage of both potential business opportunities.
The PPP forgiveness application does not allow businesses to claim payroll costs for ERTC pay and for inadmissible salary expenses.
Since the ERC is a tax credit rather than a loan, it does not necessitate repayment. Businesses could only apply for the PPP or the ERC in the first stimulus package. Because of this regulatory change, firms now have access to both funding options.
Getting Help With ERC Refundable Tax Credit
Hope this article gave you a better understanding of ERC stimulus and how to utilize it for your business. In short, this is an unprecedented opportunity to get money back from the government to help grow your business.
There is still time to take advantage of the Employee Retention Credit. A business has up to 3 years to amend an employer’s quarterly federal tax return, but the government could choose to cut the program at anytime.
Federal Tax Credits Org has helped thousands of businesses claim the ERC and get maximum returns. We understand what the IRS is looking for and take the right steps to keep them happy.
Trust us to get you a fair and legal return.
We offer a streamlined process that requires minimal time invested on your part.
Contact us if you have any questions, want our services, or get a complimentary initial ERC estimate. Fill out the form below to contact us. It just covers some basic, noninvasive information about your business. You don’t have to provide any of your business’s sensitive information.
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