1 – What is an Employee Retention Credit? (ERC)
An ERC is a refundable payroll tax credit created by the CARES Act. The credit can be as high as $26K per employee.
2 – Is the Employee Retention Tax Credit a Loan I Have to Pay Back?
No. Your ERC is a completely refundable tax credit that you claim against specific employment taxes. It’s a refundable credit in excess of your payroll taxes applied to credit-generating periods. As such, it’s not considered a loan, and will not have to be paid back.
3 – Can I get an Employee Retention Credit and a PPP Loan?
Yes. However, specific wages used to compute PPP loans shouldn’t be used when calculating your ERCs.
4 – Is There Any Difference Between ERCs and ERTCs?
Either abbreviation is correct. Both are acronyms for the same program, Employer Retention Tax Credits.
5 – How do I Apply for an Employee Retention Tax Credit?
If you haven’t applied for an ERC yet, all you need to do is file an amended Form 941X for the quarters you were an eligible employer.
6 – Are there any ERC Minimum or Maximum Employee Number Requirements?
Fortunately, there is no minimum number of employees. For 2020 the maximum number is 100 employees, and for 2021 the maximum number is 500.
7 – How can I Qualify for an Employee Retention Credit?
Your business qualifies for an ERC if it experienced a partial shutdown due to government pandemic-related orders limiting commerce, meetings, travel, or had significant reductions in quarterly gross income compared to the same quarters in 2019.
8 – Should I use the Government Mandate Test or Gross Receipts Test to Determine ERC Eligibility?
Great question! Most businesses are qualifying under the Government Mandate Test for 2020 ERCs. And for 2021, they are using the Gross Receipts Test.
9 – Is it too Late to Apply for my Employee Retention Credit?
No. The good news is that your ERC application deadlines are April 15, 2024, for a 2020 ERC, and April 15, 2025, for a 2021 ERC.
10 – Are There Specific Years and Time Frames for ERCs?
Yes. Eligible employers may use qualified wages from most of 2020, and the first three quarters of 2021.
11 – Do Employee Retention Tax Credits Only Apply to Full-Time Employees?
No. Both part-time and full-time employee wages qualify for your ERC calculations.
12 – Do I Need to File for PPP Loan Forgiveness Before Filing for an ERC?
No. However, make sure you allocate the maximum allowable non-payroll costs to the PPP loan being forgiven.
13 – How Long Will I Have to Wait for my ERC Refund Checks?
In general, it will take up-to one year to receive your refund checks from the time you filed your 941X amended payroll tax return.
Additionally, PPP loans can also include non-payroll expenses. That’s why it’s important to calculate ERCs and PPP forgiveness at the same time.
With this approach PPP funding may be allocated to wages that wouldn’t produce ERCs—such as wages in excess of $10K over ERC credit-generating periods.
14 – Should I Have my Payroll Company Prepare and File my ERCs?
Yes. Payroll companies, providing they specialize in ERCs are a good choice because they have access to all your payroll data. And they’re also experts in filing payroll tax returns including the 941X.
15 – Do My Independent Contractors Qualify as Employees for ERCs?
No. Compensation paid to 1099 independent contractors aren’t eligible for ERCs and shouldn’t be included in your qualified wage calculations.
16 – What’s Included and Excluded from Gross Receipts for ERCs?
You can exclude proceeds from your PPP loans, and ERCs. What you should include are gross receipts, total sales, net returns and allowances, and amounts received for services.
You also need to add any income from investments, and from incidental/outside sources—regardless of whether you included this income in your gross income.
17 – Do Forgiven PPP Loans Count as Gross Receipts for ERC Calculations?
Luckily, no. Based on August 2021 IRS safe harbor guidance, PPP loan forgiveness doesn’t create gross receipts equal to the forgiveness. This also applies to Shuttered Venue Grants and Restaurant Revitalization funding.
18 – Do Not for Profit Businesses Qualify for ERCs?
Yes! Not-for-profit businesses are entitled to claim ERCs.
19 – Can I Get an ERC if I use a PEO?
Yes! Not-for-profit businesses are also entitled to claim an ERC.
20 – Do Religious Organizations and Churches Qualify for ERCs?
Yes. ERCs are available to churches and other religious organizations impacted by government-ordered capacity restrictions, or that experienced significant reductions in gross receipts.