Understanding Employee Retention Credit Eligibility Requirements and Limitations

June 16th, 2023

While the Employee Retention Credit (ERC) can provide significant financial relief for small business owners, it's essential to understand who doesn't qualify for this credit. Let's clarify three key points that determine eligibility, ensuring you make informed decisions for your business.

1. Revenue Decline Requirement

To qualify for the Employee Retention Credit, your business must demonstrate a revenue decline during a specific period. This decline is determined by comparing the gross receipts from a quarter in 2021 or 2022 with the same quarter in 2019. Generally, excluding the safe harbor rule, you are eligible in Q1/Q2/Q3/Q4 of 2020 if your gross receipts (revenue) declined by at least 50% in any particular quarter compared to 2019. Similarly, for Q1/Q2/Q3 of 2021, if your gross receipts (revenue) decreased by at least 20% compared to the reference period, then you can qualify for those specific quarters too. At Resolute Tax Credits, we understand the intricacies of calculating revenue declines and can assist you in navigating this process. Our team of experts ensure that you meet the requirements and safely maximize your ERC.

2. PPP Loan Impact

While the ERC offers substantial benefits, it's crucial to note that any qualified wages claimed for the credit cannot overlap with the Paycheck Protection Program (PPP) loan forgiveness. The PPP loan was introduced as a vital lifeline for businesses during the COVID-19 pandemic, and utilizing both programs simultaneously for the same wages is not permitted. If you received a PPP loan and are uncertain about its impact on your eligibility for ERC, we can help guide you through the complexities. Our comprehensive understanding of both programs enables us to help you make informed decisions that align with your business's goals.

3. Potential IRS Audit

It's important to be aware that claiming the Employee Retention Credit might trigger an audit from the Internal Revenue Service (IRS). The IRS closely scrutinizes ERC claims due to potential abuse or incorrect filings. While this audit risk shouldn't discourage eligible businesses from claiming the credits, it underscores the importance of accurate record-keeping and adherence to all IRS guidelines.

In conclusion, the ERC has some clear eligibility requirements, but, if you want to feel assured about receiving tailored guidance from professionals equipped with the same tools as the Big 4 firms, then fill out our Free ERC Estimate questionaire and we'll contact you promptly.

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