7 Eligibility for Employee Retention Credit: How to file ERC

Most businesses were seriously affected by the pandemic, but some companies were impacted more than others. The ERC program was created to provide financial relief for businesses by rewarding them for retaining the employees they need. Do you want to know the Eligibility for Employee Retention Credit?

It was virtually impossible to know what businesses were eligible and that is why we intend to share more light on the Employee Retention Credit to help employers that qualify for the credit now.

Both large and small companies could qualify for this credit, but there are rules and deadlines that must be followed to qualify. The ERC program has been a huge help to businesses that were affected by the pandemic and it has been really helpful to those that receive it.

eligibility for employee retention credit

The program allows employers to claim a tax credit of up to $26,000 per employee that they retained in 2020, and the first 3 quarters of 2021. If you are in the eligible group, then you should apply to claim the tax credit. 

What is Employee Retention Credit?

The Pandemic Outbreak affected different countries and the United States was not left out. Approximately 100m cases of Covid-19 were reported in the country in 2021 and that left many families and businesses with serious losses.

One of the things that the government did to help businesses pick up from where they had left was to introduce the ERC. The program allowed employers to claim a tax credit for every employee that was retained in 2020 and 2021.

The Employee Retention Credit is a tax credit that is utilized by employers to help them recover from the pandemic. The government offers this as an incentive to businesses in order to encourage them to continue their operations and it is available after the pandemic. If a business qualifies for the tax credit, then it allows them to reduce its annual taxes for every employee that is retained in the program. 

The credit will help companies that were affected by the pandemic because it makes it easier for them to pay for the employees that were kept on. In the end, it offers financial relief to those who have been affected by the pandemic.

It was aimed at businesses that might have experienced severe losses due to the impact of the pandemic and they had to be seriously impacted in order to qualify for this refundable tax credit. You might fill out the 941-x for employee retention credit yourself or hire an agency to do it for you.

Eligibility for Employee Retention Credit

There are several qualifications that are required in order for an employer to qualify for the ERC program. There are as follows:

1. Revenue Must be 20% Lower per quarter: 

Employers that have experienced a 20% decline in revenue in the first 3 quarters of 2021 are eligible for the ERC. The decline must be sustainable and it can be due to several factors.

There are many reasons that this might be the case, but it is based on the fact that many businesses were affected by the pandemic. The idea is to help businesses recover from this and it allows those that are affected by the fall in sales to recover.

2. Retention of 100 or fewer full-time workers

The next qualification for this credit is that the business must have around 100 workers on a minimum basis that were engaged to deliver their duties on a full-time basis. The numbers can be adjusted to accommodate businesses that have a varying number of employees, but the minimum is 100.

The business must also ensure that they have not dismissed any workers in the previous 12 months and it is done on a full-time basis. On the same note, the rule applies whether the company operated partially or under a shutdown order.

3. Operates in a private sector or NGO

If the business is not operating in a private sector or tax-exempt entity, then it is not eligible for the ERC program. This means that the business should be operating in one of these categories and that way it is eligible to receive the tax credit. No public entity is eligible for the ERC and neither are government agencies, so they cannot qualify.

4. Sharp drop in gross receipts: 

The businesses that were affected by the Pandemic were unable to operate as usual and this affected their gross receipts. The rule is that businesses should have a gross receipt of 50% or less in 2020 or 2021 than they did in 2019.

This will help determine whether the business qualifies for the tax credit, so it should be based on the previous 12 months. If a business had less than 50% of their gross receipts in 2019, then it meets this requirement as well.

5. Shutdown of operation

Another qualification is that the business should have experienced a shutdown of operation in one or more quarters in 2020, and 2021. The shutdown would be the result of impacts caused by the pandemic.

Many businesses were affected by this and some of them had to shut down in order to manage a loss of income. In the example above, if any company shut down for a quarter in either 2020 or 2021, then it would be eligible for this credit.

6. Continuation on payroll

This condition from the Employee Retention Credit program is designed to ensure that businesses do not go bankrupt due to the expenses that are incurred after they have been affected by the pandemic outbreak. The rule is that they should be able to continue paying their employees in 2020 and 2021. 

There are certain circumstances that could cause a business to stop paying its workers, but it should have enough funds on hand to cater for its payroll in those periods. The employer must also ensure that it will not experience a loss of employees within this time frame.

7. Recovery Startup Businesses

This condition applies to those businesses that closed down and re-opened for trade after February 15, 2020. The business must be able to operate under the same trade name and it should be able to trace its history back to the previous business. If they were previously operating a different trade name, then they cannot now apply for this credit.

Employee Retention Credit Deadlines

Businesses will have until 2024 to apply for this Employee Retention Credit.

The government implemented the ERC program as part of the Coronavirus Aid, Relief and Economic Security Act (CARES) to help businesses recover from the fall in revenue that they faced due to the pandemic.

The ERC is an incentive program and it came into effect on February 15, 2020. This was done so that those who have been affected can take advantage of this credit in a timely manner.

The deadline for filing a claim for this tax credit depends on the year you are filing for. For example, if you are filing in 2020 and you are eligible for the credit, then you have until the 15 of April 2024 to file for it. If a business does not contact the IRS and does not submit a claim for the ERC within that period, then they cannot take advantage of it.

If you’re filing a claim for 2021, then you must submit your claim by April 15, 2025. The Employee Retention Credit is just one of many credits that came into effect in federal law and it is a refundable tax credit.

If a company qualifies for the program, they can get a refund check sent to them. This reduces their tax liability and it allows them to recover from the fall in revenue that they experienced after the pandemic outbreak.

Employee Retention Credit FAQ

Can a non-profit organization apply for ERC? 

Yes, the ERC can be applied for by a non-profit organization. The only condition that applies to this is that the organization is directly linked to the employer, which should not be a government agency.

How Do I Check on the Status of the Employee Retention Credit?

 You can check the status of your refund by calling the IRS at (800) 829-4933.

Can businesses that receive the PPP loan qualify for the ERC?

Yes, businesses that receive the Paycheck Protection Program (PPP) loan can also apply for this tax credit. The ERC standard is not based on the type of business that is eligible for it but rather based on the revenue and gross receipts that are linked to the PPP loan.

Does the Employer Retention Credit apply to businesses that were affected by a factory closure?

Yes, businesses whose only business is a factory-based operation can still apply for this credit. The only condition that applies in this scenario is that the business must trace its history to before February 15, 2020. If they were already operating under a different name when the pandemic first hit the world, then they cannot now apply for this credit.

Can a business qualify for the ERC if it shut down for a quarter in 2020 or 2021?

Yes, the rule states that businesses should have experienced a shutdown of operation in one or more quarters in 2020, and 2021. The shutdown should have occurred because the company was affected by the pandemic outbreak. This could be in either scenario such as an active business shutting down for three months or a factory that had to cease production for several weeks due to stock issues.

How does a business qualify for the ERC? 

The ERC is an incentive program and it is designed to provide incentives to those businesses that experienced a fall in revenue due to the pandemic outbreak.

This program has several qualifiers and conditions that ensure it is only available to businesses that truly require it.

The conditions are designed to ensure that all businesses affected by the outbreak will qualify, but they still only need to submit a single application in order to complete the process.

Conclusion

Employee Retention Credit is a tax credit from the IRS. It is designed to provide relief to businesses that were affected by the pandemic outbreak.

This tax credit will offer these businesses an opportunity to recover from the fall in revenue that they experienced and it will ensure that their employees continue getting paid on time.

The Employee Retention Credit will allow businesses to claim tax credits, which means they can get a refundable tax credit in case they qualify for this program.

It is important for businesses affected by the operations of the outbreaks to take advantage of this credit and it is designed to help these companies recover from the fall in revenue that they experienced due to the outbreak.

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