by Michael Slazinski
What is the ERC?
The employee retention credit (ERC) is a fully refundable tax credit employers can claim if they keep employees on the payroll. The goal of the ERC is to help employers bounce back from the financial fallout of the pandemic pandemonium and reheat economic security. If your organization hasn't researched this within the past two months, you're organization is likely a candidate for funding.
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In March 2020, the ERC became an extension of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. When signed into law via the CARES Act, the Employee Retention Tax Credit was equal to 50% of qualified wages paid to employees from March 13, 2020, to December 31, 2020.
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In December 2020, The Taxpayer Certainty and Disaster Tax Relief Act of 2020, also known as the Consolidated Appropriations Act, 2021 (CAA), expanded and extended the ERC to include employers who were previously ineligible to claim the employee retention credit (ERC) because they received Paycheck Protection Program (PPP) loans from the SBA. Nonprofits and for-profits are both are eligible.
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Congress recently approved and enhanced the Employee Retention Tax Credit (ERTC) rules. Business owners can now claim up to $26,000 in refundable payroll tax credits per employee.
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The ERTC is available to both essential and non-essential businesses in ANY INDUSTRY that was impacted by the COVID-19 pandemic.
Common Misconceptions about the ERC
Misconception: The business did not have a revenue decline.FACT: Revenue is only one factor. Many companies qualify for employee retention credit with little to no revenue decline.
Misconception: The business was deemed essential.
FACT: Essential status has not impact on ERTC, and many essential companies qualify.
Misconception: The company received PPP1, PPP2, or both, so it can't claim the credit.
FACT: Not true. Companies that received PPP funds are also eligible for employee retention credit.
Misconception: The business did not shut down, so it doesn't qualify.
FACT: Recent guidance allows for claims for an eligible employer that experienced partial disruptions.
Misconception: The business doesn't qualify if it pivoted when a particular sector was lost, and revenue went up.
FACT: Even if the company shifted, there might be lost income or disruption in "normally serviced" sectors.
Qualification criteria for the ERC
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Eligibility Businesses under 500 employees that have been negatively impacted by the coronavirus pandemic.
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Terms Suspends SBA requirements that the company does not have an alternate source for funding. No recourse, unless used for an unpermitted purpose. Interest will not exceed 4% Term not to exceed 10 years Repayment deferred for six months to one year. Receipt of Economic Injury Disaster Loan does not prohibit receipt of a loan.
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Permitted use may only be used for payroll (excludes payroll taxes), commissions, employer group health, interest on mortgage obligations (not principal- can be real or personal property), rent, utilities (electricity, gas, water, transportation, telephone, or internet access) and interest on other debt incurred prior to 2/15/20. Restrictions on employees with compensation over $100k in wages
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Certification SBA requires applicants to complete a signed agreement stating that the uncertainty of current economic conditions necessitates the loan request to support the ongoing operations of the eligible recipient and the borrower acknowledging that funds will be spent for their permitted use.
