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FAQ_ Employee Retention Tax Credit Under CARES Act

Know all about the Employee Retention Credit program under the CARES Act. Have a quick look at this easy overview with FAQs https://bit.ly/3Nlluo6

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FAQ_ Employee Retention Tax Credit Under CARES Act

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  1. FAQ: Employee Retention Tax Credit Under CARES Act For some business owners, ERC can be confusing. It has been through some changes and expansions from time to time, so we understand that it is difficult to interpret all the conditions and the benefits of the ERC. However, don’t worry if you find it cumbersome. We are here to help you. Here, we will answer some of the most frequently asked questions. So, keep reading the guide if you want to know all about the conditions, eligibility, and benefits of the employee retention credit?

  2. What Is Employee Retention Credit? And What Is It All About? ERC is a fully refundable payroll tax credit. It is available to small business employers who want to keep or retain their permanent employees on the payroll. Certain changes have been made to the ERC from the year 2020 to 2021. You can find all the changes on the IRS website. ●As per the tax year, 2020- Every eligible employer received the credit of up to 50% of the qualified wages. The total amount of the credit was $5000 for the year concerning each employee. ●As per the tax year, 2021- All the eligible recipients have received the credit of 70% percent of the qualified wages. The total amount that the employer can claim is up to $10,000 for each employee. What Does It Mean To Be A Refundable Credit? In simpler words, you don’t have to return it to the government because the amount of the ERC you received is compared against the payroll taxes you have deposited. Even if the amount exceeds the taxes you owe to the government, you will receive a check for the difference. However, in the case of advance credit, you may have to return it to the government. So, it is a small business tax relief that lets you hold certain payroll taxes that otherwise you would have paid. However, the advance ERC is like you have no amount in your account, so now you are taking a loan from the government. What Are The Changes Made To The ERC from 2020 To 2021?

  3. There have been some changes in ERC eligibility 2021, from 2020 to 2021, so it may be somewhat confusing for some. ●Number of employees- For 2020 the employer must have the employee between 1-200 (excluding the owners). But the total number was changed and increased to 500 in 2021, excluding the owners. ●The Business States- All the businesses that kept running their business operations in the calendar quarter of 2020 were eligible to apply for the ERC. But in 2021, a little reformation was made to the act. And all the businesses who faced a significant declination in gross receipt were also considered eligible. ● Credit Amount- There were also slight changes made to the credit amount an employer can receive. For the year 2020, an eligible employer could receive the 50% of qualified wages, and the total amount that an employer can receive is $5000, with respect to each of its employees. But for 2021, the amount was exceeded, which makes an employee eligible to receive 70% percent of the qualified wages. So the total amount that an employer could receive became $10,000. ●Gross Receipt Changes- As of 2020, the employees who faced a more than 50% gross receipt declination compared to the corresponding quarter of 2019 can apply for the ERC. But, it was also slightly changed for 2021. And, all the businesses that faced a more than 20% decline in the gross receipt compared to the corresponding calendar quarter of 2019 became eligible.

  4. Who Is Eligible For the ERC? Every employer is eligible to claim the ERC if there- ● Businesses have employees between 1 to 500 ( excluding any family member and the owner itself) ●The business operation was fully or partially shut down due to the government-imposed restrictions. ●Or, the business has faced a significant decline of more than 20% compared to the previous year’s corresponding calendar quarter. Who can’t apply- There are certain regulations for the employer who can’t apply. So, it is worth mentioning here. 1.Any self-employed individual can’t apply for the ERC. 2.Employers who have received the benefits of the PPP loan can’t qualify for the ERC. How Do I Determine The Gross Recipe Decantation? All calendar time frames must be compared with their corresponding quarter in 2019 to determine the ERC. For example, if you want to compare the gross receipt of a quarter second, you must compare it with a quarter second of 2019. However, in case your business did not exist at the beginning of the same quarter of 2019, you can substitute the same quarter in 2020. For further information and answers, please read our next blog!

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