Top 32 Most Frequently Asked Questions About the Employee Retention Credit (ERC/ERTC) for [2023]

What Every Business Owner Needs to Know About ERC

Top ERC General Questions

  • The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)’s Employee Retention Credit (ERC) is a fully refundable tax credit.

    Based on the guidance from the IRS for 2020, the ERC is equal to 50% of qualified wages (including allocable qualified health plan expenses) that eligible employers paid their employees during ERC-specific tax periods. The 2020 guidance applies to wages paid after 3/12/2020 and before 1/1/2021. The maximum amount of wages taken into account for each employee for all calendar quarters in 2020 is $10,000, so the maximum credit for an employee is $5,000.

    Based on the guidance from the IRS for 2021, the ERC credit is increased to 70%. The limit is $10,000 per employee per quarter and is only available for the first, second & third quarters of 2021.

    Recovery Startup businesses that began operation after February 15, 2020, may apply for a maximum ERC of $50,000 for each tax period July 1, 2021, through September 30, 2021, and October 1, 2021, through December 31, 2021.

    The tax credit offsets the employer’s portion of Social Security Tax or Medicare Tax (depending on the eligible tax period an employer claims). The IRS will refund any excess credit. W2s do not have to be corrected because the tax credit only applies to the employer’s portion of the employment taxes.

  • The Employee Retention Credit (ERC) is a government program that helps businesses keep their employees on the payroll during the COVID-19 pandemic. It is one of several benefits provided under the CARES Act and the Families First Coronavirus Response Act (FFCRA).

  • Eligible employers can claim the Employee Retention Credit (ERC) for payroll taxes paid during the COVID-19 pandemic for up to three years. The deadline to file an amended payroll tax return (Form 941-X) for 2020 is April 15, 2024, and the deadline to file an amended payroll tax return for 2021 is April 15, 2025. However, the U.S. Congress can choose to end the ERC at any time, so it is important to file your amended payroll tax return as soon as possible.

  • Payroll providers and CPAs have specific functions, and analyzing and preparing the ERC may not be one of those functions or one of their strengths. Incentives specialists work with incentives daily and have the insight to help an employer coordinate material from their agents while also gathering other qualitative and quantitative data specific to client operations.

    The ERC has various elements such as Controlled Group criteria, documenting qualification methodology, coordination with PPP loans, observing other credits, allocating healthcare expenses to qualified wages, etc. All these ERC elements are not typically built into automated payroll processes used by payroll providers.

    The complexities of the ERC are such that incentives specialists can be sure to focus on each element that applies to an employer and address them accordingly for the maximum return.

  • The Employee Retention Credit (ERC) is no longer available as a direct payment. To claim the ERC, eligible employers must now file an amended Form 941X (Quarterly Federal Payroll Tax Return) for the quarters during which they were eligible employers.

  • For 2020, the ERC equals 50% of the “qualified wages” paid to an employee, up to $10,000 per employee, capped at $5,000 annually.

    For 2021, the ERC equals 70% of the first $10,000 in “qualified wages” per employee in each eligible calendar quarter of 2021.

Top ERC Eligibility Questions

  • Qualifying an employer for the ERC is considered quarter-by-quarter because an employer's facts and circumstances may have changed throughout the Pandemic, and the ERC has undergone multiple amendments.

    To qualify for ERC for one or more quarters, an employer must have experienced at least one of the following:

    ● For calendar quarters in 2020 and 2021 - full or partial suspension or interruption of operations due to government orders due to COVID-19,
    ● For calendar quarters in 2020 only - a significant decline in gross receipts (beginning when gross receipts were less than 50% of gross receipts for the same calendar quarter in 2019 and ending in the first calendar quarter after the calendar quarter in which gross receipts are greater than 80% of gross receipts for the same calendar quarter in 2019)
    ● For the first, second, and third calendar quarters in 2021 - a decline in gross receipts is to be defined as a quarter where gross receipts were less than 80% of the same quarter in 2019 or an alternative quarter election giving employers the ability to look at the prior calendar quarter and compare to the same calendar quarter in 2019 to determine whether there was a decline in gross receipts. For employers not in existence in 2019 employers alternative comparisons are allowed.
    ● For the third and fourth calendar quarters of 2021 - "recovery startup businesses."

    • That began carrying on any trade or business after February 15, 2020,
    • That had average annual gross receipts under $1,000,000 for the 3-taxable-year period ending with the taxable year that precedes the calendar quarter for which the credit is determined.

  • Circumstances that would make a business ineligible include not having any employment tax liability, not having any employees during the ERC tax periods, not being in business during the ERC tax periods, etc.

    Discussing your facts and circumstances with an incentives specialist is crucial to determining if there is a reasonable basis for claiming the ERC. Even if you’re not eligible under the ERC guidelines, you might qualify for another program.

  • There is still time to apply for the ERC tax credit in 2023. The credit was only available for specific tax periods during the Pandemic and is no longer available for current claims. However, you can retroactively claim the ERC for 2020 and 2021 eligible tax periods by amending an employer's quarterly federal tax return. The IRS instructs employers to amend returns and claim refunds for up to three years after the filing deadline.

  • You can still qualify for the Employee Retention Credit (ERC) even if you don't pay taxes. The purpose of the ERC is to keep people employed, so your business's tax status is not a factor in eligibility. If your business was financially impacted by the COVID-19 pandemic, you are almost certainly eligible for the ERC.

  • Yes. An employer may not include the amount of the wages forgiven by a PPP loan in the ERC calculation. However, most employers have wages beyond the payroll expense amount forgiven by the PPP loan to use for the ERC. Further, the ERC eligibility periods are longer than the PPP periods. It is important to utilize strategies for allocating PPP funding to PPP-eligible wages that would not generate any ERC (e.g., to majority company owners or wages over $10,000).

  • If an employer paid employee wages during the eligible ERC tax periods, and other eligibility is determined, yes, the business can retroactively claim the ERC.

  • For 2020, as it applies to the ERC, a small employer is defined as having 100 or fewer average full-time employees during 2019. For 2021, a small employer, as it applies to the ERC, is defined as having 500 or fewer average full-time employees during 2019.

    Affiliation rules also must be analyzed in computing the full-time employees. A full-time employee for any calendar month is an employee who has, on average, at least 30 hours of service per week during the calendar month or at least 130 hours of service during that month.

  • The Employee Retention Credit (ERC) expired in September 2021, but eligible businesses can still file amended payroll tax returns (Form 941-X) to claim the credit for up to three years after the original filing deadline. The deadline to file an amended payroll tax return for 2020 is April 15, 2024, and the deadline to file an amended payroll tax return for 2021 is April 15, 2025.

  • To be eligible for the Employee Retention Credit (ERC), a business must have carried on a trade or business during calendar years 2020 or 2021 and either:

    ● Fully or partially suspended operations due to a governmental order, or
    ● Experienced a significant decline in gross receipts during a calendar quarter when compared to 2019.

  • ERC is available retroactively for eligible employers meeting specific requirements from March 13, 2020, to December 31, 2021. The ERC is determined quarterly due to the different quarterly qualifying elements. Please see the ERC 2020 v ERC 2021 comparison chart for information and eligible tax periods.

  • No, the ERC can only be claimed for the specific dates that the government mandates suspended or more than nominally impacted your operations.

  • It is essential to review the structure of the businesses. Separate businesses under common ownership that meet IRS Controlled Group criteria must be evaluated together for ERC eligibility. If the tests are passed, all entities are eligible; if not, none are eligible. The ERC is then calculated and filed for each entity separately.

  • A business is considered to have partially suspended operations if an appropriate governmental authority imposes restrictions on the business's operations, such as limiting commerce, travel, or group meetings. This can include a "Stay at Home Order" for non-essential businesses, a capacity restriction, or other restrictions.