What Is the Employee Retention Credit: 5 Steps for Employers

As an employer, you feel responsible for your business and your hard-working employees. It’s no secret that COVID-19 turned the world upside down and probably made it beyond difficult to take care of your business the way you always have in the past. 

But, we have some good news: the Employee Retention Credit (ERC) was legislation designed to help eligible small to medium-sized businesses get back on their feet. Here, we’ll tackle the question, “What is the Employee Retention Credit program, and how can qualifying businesses benefit from it?” We’ll also give you the five steps needed to navigate the ERC process like a pro.

What is the Employee Retention Credit?

In short, the ERC is a payroll tax credit for certain eligible businesses. Similar to the Paycheck Protection Program (PPP), this legislation is part of the CARES Act. Due to various extensions and changes by the IRS, the qualifying years for the ERC are all of 2020 and the first three quarters of 2021.

Although the initial ERC period has ended, eligible businesses can still apply for their ERC refund. However, the window of opportunity won’t be open forever. To get the ball rolling, follow these five steps:

5 steps for employers to navigate the ERC

1. Know the ERC eligibility requirements

To know if your business may qualify for the payroll tax credit, you’ll need to know the ERC eligibility requirements. While these requirements are complex, if your business was negatively impacted by the pandemic, it may be eligible. Making sure you’re likely qualified may help speed up the ERC application process. Doing so may take a few moments, but it’s worth it:  just check your records to see if they match the qualifications for each year. Here is the full low-down:

2020 ERC eligibility & qualifications

• You had less than 100 employees on your payroll in 2019.
• You kept employees on your payroll.
• Your business suffered during the pandemic:

• Your revenue decreased by 50% or more for any 2020 quarter when compared to the same quarter of 2019. 

OR

• Your business was forced to shut down or partially suspend operations due to a government order for any quarter of 2020.

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2021 ERC eligibility & qualifications

• You had less than 500 employees on your payroll in 2019.
• You kept employees on your payroll.
• Your business suffered during the pandemic:

• Your revenue decreased by 20% or more during any of the first three quarters of 2021 when compared to the same quarter of 2019. 

OR

• Your business was forced to shut down or partially suspend operations due to a government order during the first three quarters of 2021. 

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For both years, you may also qualify if your business had canceled travel plans, meetings were impacted, or your suppliers had issues in their supply chain due to the pandemic.

2. Gather your paperwork

If you are eligible,  make sure you have all of your ducks in a row for a smooth application process. You should gather the necessary documents and do a quick check to make sure there are no missing components or mistakes. In addition to these documents, you’ll also need a Form 941-X to amend your Form 941 for each qualifying quarter.

3. Find the right ERC originator

An ERC originator is a company that assists eligible businesses in claiming their Employee Retention Credit refund. They have been around the block more times than your average morning jogger, and they can help you get the refund your business may qualify for. 

However, not all ERC originators are the same. 

Innovation Refunds:

1. Has no upfront costs to see if you may qualify.
2. Has a solid track record and reviews.
3. Uses an independent network of qualified tax attorneys and professionals.

When you find an ERC originator you think is up to the task, ask them a few ERC questions before you seal the deal. A true professional should be able to answer your questions to your satisfaction.

4. Work with your ERC originator to apply for the ERC

Your ERC professional should stay in touch with you during the entire process. These wonderful human beings will do a number of tasks including:

• They will work to estimate your refund.
• They may ask for more information to help ensure a smooth process.
• They will let you know if they find any mistakes or missing information.
• They will assist you with submitting your amended paperwork to the IRS for review.

Although the time can vary, this part of the process typically takes three to six weeks to ensure the accuracy and completeness of your information before you file with the IRS.

5. Claiming the ERC refund

Depending on your circumstances, there may be additional steps. Generally speaking, most small businesses that successfully submitted their claim to the IRS will receive their refund within six to nine months. There have been some IRS processing delays, but you can check the status of your refund by visiting the IRS website or calling 800-829-1954.

If you’re wondering if the process is worth the result, remember what the Employee Retention Credit is: a refund back into qualifying businesses. How much? Eligible businesses could receive up to $26,000 per eligible employee kept on the payroll for all of 2020 and the first three quarters of 2021; which is potentially hundreds of thousands of dollars going back into your business where it belongs.

The ERC refund could help qualifying businesses thrive

What could a business do with this extra money? The possibilities are endless. The ERC was designed to help eligible business owners get back on their feet and continue to provide income for their employees despite the economic hardship caused by the pandemic. 

If you’ve got more questions, Innovation Refunds is happy to help. To learn more, check our FAQs.

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