12 Frequently Asked Questions About the ERC Tax Credit
The Employee Retention Credit, a tax credit also known as the ERC or ERTC, has already been claimed by many small business owners, but there is still time to claim it if you and your business are eligible and haven’t applied for the ERC. For those who are confused about their eligibility for the ERC or about the tax credit in general, we put together a list of frequently asked questions about the ERC tax credit.
Our ERC team has answered many of these questions for a number of clients so far, and we urge you to contact us if you have questions or concerns about the ERC to see how Dayes Law Firm can help.
1. What is the ERC?
The ERC is a refundable payroll tax credit some businesses can claim on qualified wages paid to their employees if they kept staff on their payroll despite major financial setbacks during the height of the COVID-19 pandemic in 2020 and 2021.
2. What is the CARES Act?
The CARES Act is short for the Coronavirus Aid, Relief, and Economic Security Act. It was passed in March 2020 in order to help with the financial impact on businesses during the first months of the COVID-19 pandemic.
The CARES Act was a $2 trillion stimulus bill that “included direct benefits to furloughed workers, families with children, small businesses, independent contractors and gig workers, large corporations, and the health care system,” Investopedia reported. It included the Employee Retention Credit.
3. Are the ERC and ERTC the Same Thing?
Yes. ERC is short for Employee Retention Credit and ERTC is short for Employee Retention Tax Credit. They both refer to the same tax credit program.
4. Does My Business Qualify for the ERC?
The ERC is available to employers that experienced either a full or partial shutdown of operations due to a governmental order related to COVID-19, or if a business experienced a decline in gross receipts in 2020 or 2021 as compared to the same quarter in 2019. An experienced tax professional like those on the team at Dayes Law Firm can help you determine if your business qualifies to apply for the credit.
5. Is the ERC Still Available?
The Employee Retention Credit is no longer available for current claims. However, you can still claim the credit retroactively by amending your employment tax returns. Technically, the deadline for claiming the ERC is three years after the original due date for your business’ tax return.
6. Does the ERC Have a Deadline?
Yes. The two deadlines for claiming the ERC in 2023 are:
For all quarters in 2020, the deadline to apply for the ERC is April 15, 2024.
For all quarters in 2021, the deadline is April 15, 2025.
7. What Are Qualified Wages for the ERC?
In short, qualified wages approved for claiming the ERC include compensation subject to FICA taxes, including both wages and health expenses. But it gets more complicated from there.
For all quarters of 2020, for employers with no more than 100 full-time employees, qualified wages count as all wages paid to any W-2, full-time employee. For the first three quarters of 2021, for eligible employers with no more than 500 full-time employees, qualified wages include all wages paid to any W-2, full-time employee. There are different rules for the last quarter of 2021 and recovery startup businesses. It might be in the best interest of your business to contact a trusted tax professional to work out these details.
8. Does the Employee Retention Credit Have to be Paid Back?
No. The ERC is a fully refundable tax credit. It is available for certain employers to claim against certain employment taxes. It is not a loan and does not need to be paid back to the government.
9. How Do I Apply for the ERC?
To apply for the ERC, you can file an amended Form 941X (Quarterly Federal Payroll Tax Return) for past quarters in which a business was an eligible employer. If you are still unsure whether you’re eligible to apply, you can ask a tax professional or attorney like those at Dayes Law Firm for assistance.
10. Can a Closed Business Apply for the ERC?
It depends. Businesses that were temporarily closed can apply for the Employee Retention Credit retroactively. If your business was open during certain quarters of 2020 and 2021 and paying qualified wages, but is closed now, you may be able to claim the ERC for periods you were eligible to do so. An experienced ERC team can help you determine this.
11. Is My Business Large or Small For the ERC?
For 2020, the ERC applies to businesses with 100 or fewer full-time employees, according to the IRS. Large employers were considered businesses with more than 100 full-time employees that year. For 2021, a small business is classified as one with 500 or fewer full-time employees instead.
12. Which Employees Can a Business Claim the ERC For?
If you had 100 or fewer employees in 2020, you can potentially claim wages for all employees. In 2021, that number was raised to 500 full-time employees. Employers with more staff than those numbers either year can only claim the ERC for those employees who were not providing services. To work out your number of full-time equivalent employees for the purposes of the ERC, a trusted tax professional may be able to help.
For any additional Employee Retention Credit questions you may have, please feel free to contact our firm for assistance. We can offer a free, no-obligation consultation to discuss the needs of your business. Fill out the form on this page or give us a call at (866)257-1223 to speak with a Dayes Law Firm ERTC expert and learn more!