What Is the Meaning of the Term ERC Safe Harbor?

July 17, 2023
Dayes Law Firm

Many businesses struggled during the COVID-19 pandemic. The government offered various programs to help support companies, including the ERC.

If you want to claim your ERC tax credit, you may have encountered the term “ERC safe harbor” and wondered what it means. 

The Basics of the ERC

Trying to retain employees during the pandemic was a struggle. Many businesses couldn’t operate as they used to, which meant cutting hours and wages. The government sought to reduce the strain on businesses and help employers keep their employees by offering an incentive: the Employee Retention Credit.

The Employee Retention Credit (ERC) is a tax credit offered to business owners who experienced fully or partially suspended operations or a decline in gross receipts due to the pandemic. An eligible employer can claim up to 50% of the wages for each employee they had in 2020, with a cap of $10,000 per year; in 2021, the cap rose to $10,000 per quarter, and the percentage rose to 70%.

This program can be incredibly beneficial, but applying may come with unexpected complications. If a single employer participated in other economic relief programs, they might find themselves wondering whether they’re still eligible.

Defining the Safe Harbor

The government issued many financial relief initiatives to help businesses, including the Paycheck Protection Program (PPC), Shuttered Venue Operators Grant (SVOG), and Restaurant Revitalization Fund (RRF). These programs were beneficial in many ways, but they led to problems for some when trying to calculate gross receipts for the ERC.

“Gross receipts” refers to any capital earned throughout the year, including through gifts and financial aid programs. To qualify for the ERC, a business must have experienced a significant decline in gross receipts for a given quarter. Theoretically, you should include aid from the above programs in those calculations, which could affect eligibility.

The IRS issued the ERC safe harbor to ensure qualified employers don’t lose valuable financial assistance. This means you may exclude financial aid from the PPC, SVOG, and RRF programs when calculating ERC.

How To Use the Safe Harbor

You don’t have to adopt the safe harbor if you don’t want to. If you do choose to utilize it, you must apply it to every quarter and every business you own.

Electing to use it is easy enough. When determining eligibility for the ERC on your employment tax returns, simply leave any of the funds from the relief programs out of your calculations.

Call Dayes Law Firm PC To Learn More About Taking Advantage of This Credit

The COVID-19 pandemic had a major impact. Business owners may still find themselves struggling to cope and want to take advantage of any possible relief they can find as they regain a foothold in their respective industries. The ERC safe harbor allows you to utilize multiple programs to keep your business running so you can focus on the all-important task of running a smooth operation.

Determining eligibility requirements isn’t always easy, even with the safe harbor in place. At Dayes Law Firm PC, we provide clients with reliable assistance. We can help you determine whether you’re eligible, explain more about the ERC safe harbor, and assist you with claiming your credit.

Our attorneys are knowledgeable, and dedicated to our clients. If you’d like to learn more, call (866) 257-1223 or fill out our contact form. Request a free consultation today.