How Do You Calculate the ERC Tax Credit?

May 25, 2023
Dayes Law Firm

The Employee Retention Credit, sometimes called the Employee Retention Tax Credit or ERC/ERTC, is a tax credit introduced by the United States federal government to reward employers for keeping W2 employees on payroll during the height of the COVID-19 pandemic. Businesses were eligible to claim the tax credit for both years 2020 and 2021, but there’s still time to retroactively claim the ERC if you haven’t already applied for it. But how do you calculate the ERC tax credit for your business?

ERC Eligibility Time Periods

To calculate your eligibility to receive the ERC, you have to figure out if your business is permitted to do so based on an eligibility period. The ERC was first available for wages paid from March 13, 2020, to December 31, 2020, and it was later extended. 

The Consolidated Appropriations Act, 2021 (CAA), effective December 27, 2020, extended the ERC to include wages paid before July 1, 2021, and The American Rescue Plan Act of 2021 (ARPA), effective as of April 1, 2021, extended the coverage period to incorporate wages paid between July 1, 2021, and December 31, 2021.

However, according to Investopedia, the Infrastructure Investment and Jobs Act retroactively ended the Employee Retention Tax Credit as of September 30, 2021, with an exception for recovery startup businesses, which retained eligibility through December 2021.

Calculating the ERC

If your business is eligible based on the time periods involved, there are other factors that determine how you’d calculate the ERC tax credit. For instance, your business also must have experienced fully or partially suspended operations due to government orders to qualify for the Employee Retention Credit – or, if your business underwent a significant drop in its gross receipts during a quarter in comparison to the same quarter in 2019, it may be eligible to claim the tax credit. 

To qualify for the ERC and to begin calculating the credit, your business must have experienced a reduction of at least 50 percent in gross receipts for a calendar quarter in 2020 as compared to the same quarter in 2019. Alternatively, it may also be eligible if there was a 20 percent decline in gross receipts from 2019 to 2021.

The credit is calculated differently depending on if you’re looking at 2020 or 2021. For 2020, the tax credit is equal to 50 percent of qualified wages that employers paid to their employees in a calendar quarter, and qualified employers can potentially get a maximum credit of $5,000 per employee.

And for 2021, the tax credit is equal to 70 percent of qualified wages that employers paid their employees, with qualified employers possibly earning a maximum credit of $7,000 per employee per quarter.

To determine your eligibility for the ERC, you’ll also need to calculate the number of full-time equivalent employees (FTEs) in your business. A full-time equivalent employee would, in this case, mean an employee who works an average of at least 30 hours every week or 130 hours per calendar month.

Once you’ve resolved all those numbers, you may be ready to retroactively claim the ERC tax credit! If you’re not sure of your calculations or are not confident that you determined your eligibility as accurately as possible, it may be time to get a tax professional involved to help you with the Employee Retention Credit.

Get Help to Calculate the ERC

The team at Dayes Law Firm and our partners can offer you assistance with the Employee Retention Tax Credit. We can work with you to calculate your eligibility for this program and with your application.

Please contact us for a free consultation concerning any of your ERC questions, especially ones having to do with calculating your ERC eligibility! We have comprehensive experience in Employee Retention Credit matters and have been involved in filing for more than $250 million in refunds for numerous companies already.

Fill out the form on this page or give us a call to learn more and to get a no-obligation, free evaluation to see if we can help you calculate the ERC tax credit for your business today!