The COVID-19 pandemic halted or vastly impacted the operations of many small businesses, and the U.S. Government stepped in to help give business owners some financial relief.
With the CARES Act (Coronavirus Aid, Relief, and Economic Security) came the ERC tax credit, also known as the Employee Retention Credit. This tax credit is given to business owners who retained their employees despite the economic downturn.
Understandably, business owners have had a lot of questions about the rules for eligibility – including whether there is a minimum number of employees a business must have to qualify for the ERC Tax Credit.
About the ERC Tax Credit
As the name suggests, the ERC Tax Credit is a credit or refund provided to business owners. It is neither a grant nor a loan, so there is no requirement to pay anything back or file for loan forgiveness (unlike the Paycheck Protection Program or PPP).
Most, but not all, businesses qualify for the ERC Tax Credit. To be an eligible employer, your business must meet one of the following two requirements:
- Experience a decline in revenue of 50% from 2019 to 2020 and a 20% decline from 2019 to 2021. Note that these calculations are done on a quarterly basis, so you may qualify for one or more quarters.
- Experience a full or partial suspension of operations due to a government mandate during the pandemic.
There are expanded eligibility criteria for startups who began operations after February 15, 2020. Further, a tax-exempt organization may also qualify for ERC as a contribution expense rather than as qualified wages paid.
What is the Minimum Number of Employees Required to Qualify for ERC?
The good news is that there is no minimum number of employees required to qualify, so even if you have just one employee, you may still be able to claim the credit.
There is, however, a maximum number of employees. In 2020, the maximum number of employees was 100, and that number increased to 500 for the 2021 calendar year. While you can claim the ERC Tax Credit for full and part-time employees, only full-time employees are tallied toward your total headcount for ERC eligibility.
Other Things to Know About ERC
The rules of the ERC Tax Credit are complicated, and the IRS has made changes since the original CARES Act with two subsequent expansions, including the Coronavirus Relief Response Supplemental Appropriations Act in December 2020 and the American Rescue Plan Act in March 2021. These two new acts made more companies eligible for the tax credit, while increasing the amount of potential refund amount.
However, with changing rules comes more confusion, so we’ve outlined some updates to help clarify what you need to know.
- Businesses can still get ERC funds if they received a PPP loan. This wasn’t originally the case when the Act was first passed, but the rules changed. As long as the ERC claim does not include PPP funds used to pay wages.
- Businesses that didn’t claim the tax credit can get a retroactive refund. If you’ve already paid your employment taxes, you can get a refund by filing an amended Form 941-X.
- The deadlines for filing have been extended, but they are approaching fast. To claim funds for 2020, the filing deadline is April 15, 2024. For the 2021 ERC, the deadline is April 15, 2025.
Contact Dayes Law Firm PC to Help You Claim Your Employee Retention Credit
Whether you have a handful of employees or employ 100 or more people, Dayes Law Firm PC can help you file for the ERC. To determine your eligibility and begin the claims process, contact us for a no-cost, no-obligation consultation.