You may have heard of the ERC credit, designed to help businesses who suffered financial losses during the pandemic. But what exactly is it and how do you qualify?
We’ve got all your most pressing questions answer below.
What is the ERC credit?
ERC stands for Employee Retention Credit. This is a newish tax credit for business owners who paid their employees over the length of the 2020 pandemic. The maximum amount a business can qualify for under this credit is $26K per employee. Wow, right??
Who qualifies for the ERC credit?
So who qualifies for this sweet tax credit? In theory, it should apply to just about any U.S. organization, including:
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Small businesses
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Startups
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Non-profits
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Corporations
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LLCs
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Any company with fewer than 500 employees
There is one exception—you may not qualify if your employees were able to keep working as normal during the pandemic, and if you didn’t experience a significant loss of income in that time.
To get the tax credit, your business must meet the following three qualifications:
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Be U.S.-based
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Have employed fewer than 500 full-time employees in 2019
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Have experienced a significant business disruption during the pandemic due to government mandates OR have experienced a significant loss of income during the pandemic
Since payroll taxes are due every quarter, you don’t have to have employed an employee throughout the entire pandemic to qualify for this credit. Simply paying any wages during any quarter in 2020 or 2021 may make you eligible.
OK, this is where it gets complicated
Now that you’ve determined whether or not you’re eligible, it’s time to figure out which quarters you qualify for. That’s right: the tax breaks are different for 2020 and 2021. Thanks, Congress.
In general, more businesses will qualify for 2021 than for 2020.
Here’s how you qualify for 2020:
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Be U.S.-based
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Have employed 100 or fewer full-time, W-2 employees in 2019
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Have significantly changed your business operations to comply with pandemic government mandates (shutdown, work-from-home, social distancing, customer capacity limits, etc.) OR have experienced a 50% loss in income when comparing one quarter of 2019 to the same quarter in 2020
And here’s how you qualify for 2021:
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Be U.S.-based
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Have employed 500 or fewer full-time W-2 employees in 2019
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Have significantly changed your business operations to comply with pandemic government mandates (shutdown, work-from-home, social distancing, customer capacity limits, etc.) OR have experienced a 20% loss in income when comparing one quarter of 2019 to the same quarter in 2021
As you can see, the 2021 tax credit is geared toward larger businesses, and meant to expand the benefits from the 2020 credit.
Ready for more good news? You can claim this tax credit through the 2025 tax year. But we recommend acting now so you don’t forget!
Have more questions about the ERC and whether or not you qualify? Ask Taby!