An ERC Glossary for Small Businesses

August 30, 2023
Dayes Law Firm

Small businesses have big responsibilities. You don’t have the staff of a larger business, but you have all the problems of one. COVID-19 impacted all business owners, but it hit small businesses the hardest. 

The Employee Retention Credit (ERC) has helped small businesses recover from the financial losses they faced from the COVID-19 pandemic. Still, some failed to file for ERC because they were uncertain of the meanings of the complex jargon or the process involved. 

This ERC glossary breaks down the main ERC terms a business owner or employer needs to know when filing a claim.

What Is the ERC?

The ERC is a relief program for businesses that struggled during the pandemic. The ERC rewarded employers for keeping employees on their payroll by offering a percentage of employee wage expenses as a refundable tax credit. Congress terminated the ERC program early on September 30, 2021. 

Despite the program ending, businesses can still file for ERC for qualifying quarters. Claiming the ERC involves determining eligibility, filing the correct tax form, and waiting for the refund to process. 

ERC Glossary

Below are the main terms to know before filing for the ERC.

Tax Credit

Tax credits allow you to lower the taxes you owe on your tax return. The ERC is a refundable tax credit, which means you’ll collect money from it. It is not a loan you need to pay back.

Qualifying Criteria 

Qualifying criteria are the standards your business must meet to be eligible for the ERC. Eligible employers can claim up to $10,000 of 50% of employee wages in 2020 and 70% of the same in 2021. 

To qualify for the ERC, you must meet the criteria for either the gross receipts or suspension of operations test.

Gross Receipts Test

To be eligible for the ERC, you must prove your gross revenue decreased by 50% in 2020 or 20% in 2021. To calculate this difference, compare your gross revenue for each quarter with the correlating quarter in 2019.

Suspension of Operations Test

Your other option to qualify for the ERC is to prove your business had to partially or fully suspend operations in response to a government order. For example, if you had to reduce business hours, you may qualify for the ERC.

Qualifying Quarters

The IRS awards ERC by quarter. The 2020 ERC period ran between March 13, 2020, and December 31, 2020. The 2021 ERC period was between January 1, 2021, and September 30, 2021. 

You can collect the ERC for each quarter you meet the qualifying criteria.

Qualified Wages

You cannot claim all wages for the ERC. Many full-time employee salaries are qualified wages, as are a portion of their health insurance benefits. Severance payments do not qualify as qualified wages, nor do any wages you paid using a PPP loan.

Form 941 and Form 941-X

Use Form 941-X to file for the ERC retroactively. This form amends your originally filed Form 941 for a given tax year. 

Advance Employer Credit

The advance employer credit is available to small businesses that fill out Form 7200. This form provides advanced credit to businesses of 100 or fewer employees for 2020, and 500 or fewer employees for 2021.

Filing the ERC for Your Small Business? Contact a Tax Attorney

Knowing the main ERC terms is just the start. Filing for the ERC can be a long, complicated process. Simplify your ERC filing experience by contacting our ERC team at Dayes Law Firm. We’ve helped hundreds of businesses file for the ERC and would love to do the same for your business.

Contact us today at (866) 567-4510 to schedule a free consultation.