How Do ERC Credits Work?

July 12, 2023
Dayes Law Firm

The Employee Retention Tax Credit (ERTC/ERC) has been around for a couple of years, but some people may still not be aware of how ERC credits work, and how the program might give your business a leg up financially. If you’ve seen the commercials and read the ads about the ERC but still don’t quite understand the tax credit, rest assured, Dayes Law Firm can answer all of your questions about the ERC

What is the ERC?

The ERC was created as part of the billion-dollar Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and was meant to be an incentive for businesses to keep employing W2 staff even as employers experienced major financial setbacks during the height of the COVID-19 pandemic.

It was later extended and expanded through other legislation including the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021 but is not available for filings from 2022 and beyond. 

The ERC is available to eligible employers for wages paid from March 13, 2020, through December 31, 2021, and it can be claimed retroactively. But first, you might want to understand how ERC credits work.

How Does the ERC Work?

The Employee Retention Credit is a fully refundable tax credit that certain employers can claim against certain employment taxes. It does not need to be paid back to the government because it is not a loan. 

If your business experienced fully or partially suspended operations due to government orders during the COVID-19 pandemic, or if it saw a substantial decline in gross receipts between March 2020 and December 2021 as compared to the same quarter in 2019, it may be eligible to claim the tax credit.

To qualify for the ERC, your gross receipts for a 2020 calendar quarter must have been less than 50 percent of the gross receipts for that same quarter in 2019, or at least a 20 percent decline from 2019 to 2021. For your 2020 amended tax return, businesses can claim up to $5,000 per employee. When considering your 2021 filing instead, the credit has the potential to earn you up to $7,000 per employee per quarter, for a total of $21,000 for 2021.

ERC Credits

But how do ERC credits specifically work? Business owners who didn’t claim the credit when they filed their 2020 and 2021 employment tax returns can claim the credit by filing adjusted employment tax returns to retroactively receive it.

The IRS reports that businesses that file quarterly employment tax returns can file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, to claim the ERC credit. 

After all of your ERC claim documentation is filed, if you have funds left over from the credit after your tax liability is covered, you could possibly receive a payment back of up to $26,000 per employee.

The team at Dayes Law Firm can further explain to you how ERC credits work and offer assistance with applying for the credit. Along with our fellow tax professional partners, we can help you calculate your eligibility and benefits.

Please feel free to contact us for a free consultation regarding any of your ERC questions and concerns. You can get in touch with us by giving us a call or filling out the form on this page to learn more about how we can support you and your business. 

We think we can prove to you why so many businesses have already turned to us for assistance with filing for over $250 million in ERC tax credit claims so far. Call today and find out how we can help you, too!