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contact usIf you have questions, you're not alone. The ERC can be a complex process to understand without the assistance of a tax professional. We're here to simplify the process and answer your questions.
No. Businesses that claimed PPP (Paycheck Protection Program) loans may still be eligible for the ERC! This is a common misconception about the ERC – Congress made a retroactive change to the ERC at the end of 2020 to allow PPP loan recipients to claim the ERC.
Self-employed individuals are not eligible for the ERC with respect to their own self-employment earnings. However, a self-employed individual who employs other individuals in the self-employed individual's trade or business and who otherwise meets the requirements to be an eligible employer may be eligible for the ERC with respect to qualified wages the self-employed individual paid to its employees.
The ERC is claimed using IRS Form 941-X.
A 2020 ERC claim must be filed no later than April 15, 2024. A 2021 ERC claim must be filed no later than April 15, 2025.
In general, qualified wages include uncapped Social Security wages plus employer and pre-tax employee-paid health insurance costs.
Yes. In this scenario, the ERC would be calculated based on the health plan expenses you incurred while you were an eligible employer.
The maximum credit is $26,000 per employee (up to $5,000 in 2020 and $21,000 in 2021).
The definition of qualified wages depends on the average number of full-time employees you had in 2019. If you had 100 or fewer full-time employees on average in 2019, the 2020 ERC is based on wages paid to employees (and allocable health plan expenses) during the eligible employer period. If you had more than 100 full-time employees on average in 2019, the 2020 ERC is based on wages paid to (and allocable health plan expenses incurred for) employees not providing services during the eligible employer period due to the full or partial suspension of operations or significant decline in gross receipts. Qualified wages do not include wages paid for with forgiven PPP loans or taken into account for certain other tax credits (e.g., paid leave credits under the Families First Coronavirus Response Act and credits under Internal Revenue Code Sections 45S and 51).
Similar to the 2020 ERC, the definition of qualified wages depends on the average number of full-time employees you had in 2019. If you had 500 or fewer full-time employees on average in 2019, the 2021 ERC is based on wages paid (and allocable health plan expenses) to employees during the eligible employer period. If you had more than 500 full-time employees on average in 2019, the 2021 ERC is based on wages paid to (and allocable health plan expenses incurred for) employees not providing services during the eligible employer period due to the full or partial suspension of operations or significant decline in gross receipts. Qualified wages do not include wages paid for with forgiven PPP loans or taken into account for certain other tax credits (e.g., paid leave credits under the Families First Coronavirus Response Act and credits under Internal Revenue Code Sections 41, 45A, 45P, 45S, 51, and 1396.
The term "full-time employee" means an employee who, with respect to any calendar month in 2019, had an average of at least 30 hours of service per week or 130 hours of service in the month (130 hours of service in a month is treated as the monthly equivalent of at least 30 hours of service per week).
All entities that are members of a controlled group of corporations or are trades or businesses under common control under Internal Revenue Code Sections 52(a) or (b), or are members of an affiliated service group under Internal Revenue Code Section 414(m) of the Code must combine 1) their gross receipts to determine if they had a significant decline in gross receipts and 2) their full-time employees to determine how many full-time employees the group had on average in 2019. In general, if one member of an aggregated group is considered fully or partially suspended, all members of the group are deemed to be fully or partially suspended.
Possibly. If you experienced a significant decline in gross receipts, you do not need to prove that your operations were fully or partially suspended. If you do not meet the gross receipts test, the ERC is still available if your operations were fully shut down OR partially suspended due to governmental orders. To establish eligibility under this test, all facts and circumstances will need to be considered. In general, if more than 10% of your operations were required to shut down and the operations could not be performed remotely in a comparable manner, your operations may be deemed partially suspended. Alternatively, if you were allowed to stay open but your operations were subject to modifications, your operations also may be deemed partially suspended if the modifications reduced your ability to operate by at least 10%.
Yes – there is no exclusion for essential businesses. However, essential businesses that remained open will need to demonstrate that their in-person operations were subject to modifications that reduced their ability to operate by at least 10%.
Yes. You may be considered to have a full or partial suspension of operations due to a governmental order if, under the facts and circumstances, your suppliers were unable to make deliveries of critical goods or materials due to a governmental order that caused the supplier to suspend its operations.
If your business is not a tax-exempt entity, the term "gross receipts" has the same definition as Internal Revenue Code Section 448(c). In general, gross receipts generally include total sales (net of returns and allowances) and all amounts received for services. In addition, gross receipts include any income from investments, and from incidental or outside sources. For example, gross receipts include interest, dividends, rents, royalties, and annuities, regardless of whether those amounts are derived in the ordinary course of your trade or business. Gross receipts are generally not reduced by cost of goods sold, but are generally reduced by your adjusted basis in certain property used in a trade or business or capital assets sold. Gross receipts do not include the repayment of a loan, or amounts received with respect to sales tax if the tax is legally imposed on the purchaser of the good or service, and you merely collect and remit the sales tax to the taxing authority.
If your organization is tax-exempt, the term "gross receipts" has the same definition as Internal Revenue Code Section 6033. In general, gross receipts means the gross amount received by your organization from all sources without reduction for any costs or expenses including, for example, cost of goods or assets sold, cost of operations, or expenses of earning, raising, or collecting such amounts. Thus, gross receipts includes, but is not limited to, the gross amount you receive as contributions, gifts, grants, and similar amounts without reduction for the expenses of raising and collecting such amounts, the gross amount received as dues or assessments from members or affiliated organizations without reduction for expenses attributable to the receipt of such amounts, gross sales or receipts from business activities (including business activities unrelated to the purpose for which your organization qualifies for exemption), the gross amount received from the sale of assets without reduction for cost or other basis and expenses of sale, and the gross amount received as investment income, such as interest, dividends, rents, and royalties.
Employers that began operations after the first quarter in 2019 may use a later quarter as the base period for determining a significant decline in gross receipts. For example, if you began operations in the second quarter of 2019, you should use that quarter as the base period to determine whether you experienced a significant decline in gross receipts for the first two quarters in 2020 and should use the third and fourth quarters of 2019 for comparison to the third and fourth quarters of 2020, respectively, to determine whether you experienced a significant decline in gross receipts for those quarters. Similar logic applies if you began operations in the third or fourth quarters of 2019.
Unlike certain loans administered by the Small Business Administration (e.g., EIDL), you are not required to pay back the ERC. This credit comes in the form of a check which refunds your business for payroll expenses.
No. However, you must reduce your deduction for wages/salaries by the amount of the ERC. Once the ERC project is complete and the refund amount is known, your CPA can assist you in making any required amendments to tax returns.
