8 Most Common Employee Retention Credit Questions, Answered
If you’re a small to medium-sized business owner or manager, you may have heard of a “payroll tax credit'' and other various terms on the news at some point within the past year or two.
The Employee Retention Credit (ERC) is a federal program that rewards business owners for keeping employees on their payroll during the pandemic. If your company qualifies, it could potentially get back a six-figure refund. Below, we’re answering some of our most asked questions about the ERC so you can decide if it’s a good fit for your business.
1. Q: What is the ERC?
A: The ERC is a payroll tax credit born out of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This legislation was designed to assist small and medium-sized business owners who have struggled due to the negative impact of COVID-19 in 2020 and Q1 to Q3 in 2021.
The ERC has earned other nicknames, including:
- Employee Retention Tax Credit (ERTC)
- Payroll Tax Credit
- ERC Refund
- Payroll Tax Refund
Important note: The Paycheck Protection Program (PPP) is a separate part of the CARES Act and is not directly related to the ERC.
2. Q: How much money can I get from the ERC?
A: If your business qualifies, it could get a maximum ERC refund of $5,000 per employee kept on the payroll from March 13, 2020, to September 30, 2020. This benefit has been increased to a maximum of $21,000 per employee on your payroll from January 1, 2021 through September 30, 2021. This brings your potential maximum refund to $26,000 per qualified employee.
3. Q: Who qualifies for the ERC refund?
A: Your business may qualify for the 2020 ERC if it:
- Had 100 or fewer employees on its payroll
- Kept employees on its payroll
- Was partially or completely shut down because of a government order
- Had revenue decline by 50% or more during any quarter when compared to the same quarter in 2019
Your business may qualify for the 2021 ERC if it:
- Had 500 or fewer employees on its payroll
- Kept employees on its payroll
- Was partially or completely shut down because of a government order
- Had revenue decline by at least 20% for any of the first three quarters of 2021 when compared to the same quarter in 2019
4. Q: Can my business get the ERC refund if it received a PPP loan?
A: Yes. According to the IRS, “...an employer that is eligible for the employee retention credit (ERC) can claim the ERC even if the employer has received a Small Business Interruption Loan under the Paycheck Protection Program (PPP).”
The catch is that your business can’t claim the ERC for any wages that were counted as payroll costs when getting PPP loan forgiveness, and you can’t count payroll payments refunded by the ERC to qualify for the PPP. In other words, no double-dipping.
5. Q: Why didn’t my CPA tell me about this?
A: Your CPA may not be aware of this legislation or may not be current on the latest updates regarding your company’s eligibility for the ERC, so they didn’t think to bring it to your attention. An ERC originator like Innovation Refunds will have the knowledge to walk you through each step of the ERC application process.
6. Q: How long will I have to pay back the ERC refund?
A: The ERC is not a loan. It’s a payroll tax credit to help your business get back on its feet. Therefore, it’s money you can use and keep to support your business. This could mean paying off debt, developing new products and services, or even hiring more employees.
7. Q: What if I was told my business doesn’t qualify?
A: See if your company qualifies once more. The eligibility qualifications for the first three quarters of 2021 have been loosened, and the maximum available refund per employee has been increased. Even if your company didn’t qualify for the 2020 ERC, it may be eligible for the first three quarters of 2021.
8. How can I maximize my business’s ERC refund?
By working with an ERC originator that is updated on the latest legislation and official notices, you can aim to get the maximum refund for your company. However, there are reports of ERC mills claiming to help your business submit its ERC application. It’s important to do your research and make sure whichever ERC company you choose is credible and trustworthy.
Not all companies that advertise ERC services are equipped with the in-depth knowledge needed to navigate the application process. At Innovation Refunds, we work with a team of refund specialists, independent tax attorneys, and CPAs to help make sure your business doesn’t leave any money on the table. Our mission is to help every eligible business collect the refund it deserves so it can continue growing and planning ahead for the future.
