The ERC tax credit can help businesses financially recover from paying qualified wages to employees during the COVID-19 pandemic. This tax credit can help businesses recoup the loss of paying to keep employees on payroll when their business was experiencing significant declines in gross receipts in 2020 and 2021.
The ERC calculation is based on qualified wages during quarters that your business is eligible for the tax credit.
Does My Business Qualify for This Tax Credit?
Under the CARES Act, the ERC tax credit was established specifically to target small businesses who took a financial hit during the pandemic. This tax credit served as the government’s way of aiding smaller or localized businesses suffering financial hardship because of COVID-19 restrictions.
Because this tax credit promotes the financial stability of small businesses, only businesses with 100 or fewer employees qualify for the tax credit. Your business had to have been either fully or partially shut down as a direct result of pandemic restrictions, or your business had over a 50% decline in gross receipts for qualifying quarters.
How Much Can I Receive Per Employee?
Business owners can receive up to $21,000 per employee for eligible quarters in 2020 and 2021. This can help business owners pay wages, cover business expenses, and recover from financial loss during the pandemic. Many businesses in the pandemic experienced a serious decline in gross receipts due to government lockdowns and restrictions. These impacts included:
- Inability to open due to lockdowns from COVID-19
- Restricted capacity in business due to COVID-19
- Inability to offer in-house seating (for restaurants, bars, etc.)
The ERC tax credit is 50% of qualified wages for 2020 and 70% of qualified wages for 2021.
Can I File for ERC By Myself?
While it is possible to file your ERC application without help, it is not recommended. Because the ERC tax credit has gone through several updates from the federal government, you want to make sure that you have the most up to date information before submitting an application to the IRS.
ERC consultants or specialists often have a background as an experienced tax consultant or certified tax attorney. They can make sure that you are completing your ERC application accurately before submitting to the IRS. This can avoid anything that could cause a delay or rejection of your application, as well as a potential audit from the IRS if you provide inaccurate or inconsistent information.
The first step in filling out an ERC application is determining which quarters of 2020 and 2021 your business qualifies for. You can then calculate your ERC credit to see how much you could earn from the ERC tax credit. An ERC specialist will guide you through the process and can even help you get in line faster with the IRS. This can help you avoid additional wait times from the IRS, as they experienced a surge in applications causing delays up to nine months.