Table of Contents:
Table of Contents:
The Employee Retention Credit (ERC) was created in 2020 to provide relief to businesses that were affected by the COVID-19 pandemic. The ERC is a refundable tax credit that is available to eligible small and medium-sized businesses that, in part, experienced a significant decline in revenue or were forced to partially or fully suspend their operations due to government orders. IRS guidance and regulations have been updated since the credit was first introduced, and now, eligible businesses could get a significant refund.
In this blog post, we’ll discuss the ERC and the typical refund amounts that businesses can expect to receive when working with Innovation Refunds.
Eligibility requirements
To be eligible for the ERC, the IRS requires that a business meets the 2020 and/or 2021 ERC criteria. By way of overview, a business may qualify if it:
2020 ERC qualifications
- Had a maximum of 100 employees on payroll in 2019.
- Kept employees on payroll.
- Was forced to shut down due to a government order for any quarter of 2020.
- Revenue decreased by 50% or more for any 2020 quarter when compared to the same quarter of 2019.
2021 ERC qualifications
- Had a maximum of 500 employees on your payroll in 2019.
- Kept employees on payroll.
- Was forced to shut down due to a government order for any quarter of 2021.
- Revenue decreased by 20% or more for any 2021 quarter when compared to the same quarter of 2019.
Calculation method for the credit
The calculation method for the ERC is complex, and it involves different rules and limitations depending on the eligibility criteria. The ERC calculation is generally based on total qualified wages, including health plan expenses paid by the employer to the employee.
The government defines eligible wages as a maximum of $10,000 per year in 2020 and $10,000 per quarter in 2021. In 2020, they allow 50% to be refunded and 2021 they allow 70%. This equates to a maximum of $5,000 per employee in 2020 and a max of $21,000 per employee in 2021. The credit is also subject to different limitations depending on the size of the business and the amount of qualified wages paid.
How much can my business expect to receive?
Our clients’ typical gross refund amount is around $22,000 per employee as of March 2023. The gross average refund amount per business is $298,654.66. However, the amount that a business will receive will depend on various factors, such as the accuracy of your payroll records, involvement in other relief programs, healthcare statements, owing back taxes, any deductions you may have previously taken, and other factors. These factors may also reduce the gross refund amounts noted above, which may mean that net refund is lower.
Innovation Refunds does not provide tax or legal advice. To learn more about your business’ potential eligibility, we recommend seeking advice from our network of highly qualified independent tax and legal professionals.
