ERC Business Tax Deductions & COVID-19 Relief

ERC Business Tax Deductions & COVID-19 Relief

Both large and small businesses can obtain thousands or even millions of dollars in ERC COVID bill tax credits. These funds can help businesses recoup some of their losses due to the global pandemic.

Why businesses are filing for ERTC

  • Small business COVID relief of up to $26,000 per employee is available to employers impacted by the pandemic.

  • The government rewards businesses for retaining workers during the global pandemic.

  • ERC benefits are not a loan but a refundable tax credit that companies never need to repay.

  • Time is running out, but it’s not too late to claim ERC tax credit benefits to recoup business losses during COVID.

  • ERC services are helping businesses collect the full ERC refund amount.

Employee Retention Credit Statistics

  • $10.5 Billion

    The IRS processed $10.5 billion in ERC claims during the first, second, and third quarters of 2020.(1)

  • $7.9 Billion

    The IRS processed $7.9 billion in ERC claims during the first quarter of 2021.(2)

  • $26,000

    Eligible employers who amend their tax returns could receive refunds of up to $26,000 per employee for 2020 and 2021 combined.(3)

How the Employee Retention Credit (ERC) Helps Businesses

Many businesses, especially small businesses, were significantly impacted by government shutdowns and lost sales during the COVID-19 global pandemic. The Coronavirus Aid, Relief and Economic Security Act (CARES) of 2020 offers benefits to help eligible businesses recoup some of these losses.(3)

The goal of this payroll tax refund program was to entice employers to retain workers, even if the business was unable to open due to restrictions or had to reduce its workforce due to a drop in sales. Rather than taking a small-business tax write-off to recoup some of these funds, employers can apply for ERC small-business tax credits of up to $26,000 per employee. When multiplying this credit by numerous eligible employees, ERC collections can be quite substantial.

Fortunately, the filing date to apply for ERC credits doesn’t end until April 15, 2024, for earnings in 2020 and April 15, 2025, for earnings in 2021. Even businesses that obtained PPP loans can still qualify for an ERC tax break. Employers can’t, however, apply the same wages to both programs.

There are no restrictions as to how businesses must spend Employee Retention Credits. As long as a business qualifies, these funds can be used for any purpose, including to help stabilize and grow its operations. For example, a business can use ERC funds to pay down debt, hire more workers, renovate a workplace, and secure a supply chain.

Business owners who don’t have the time or desire to assess the rules and regulations pertaining to these credits can work with an ERC company or ERC collection agency to secure eligible funds. This step lets businesses obtain qualifying ERC funds without the hassle of organizing tax forms and managing the application process.

What Businesses Qualify for ERC?

Any business can qualify for this program as long as it meets specific requirements. The only exception is governmental agencies and instrumentalities of the government. To be eligible for Employee Retention Credits, the company must fall into one of three categories.

Businesses That Experienced Shutdowns Due to COVID-19 Government Mandates

A business can qualify for Employee Retention Credits if it was forced to shut down due to any government mandates pertaining to COVID-19. For example, if the government where a business is located imposed a curfew, shelter-in-place orders, or mandatory shutdowns for all non-essential operations, that business can qualify for the ERC COVID tax credit.

Businesses That Saw a Significant Drop in Sales From 2019 to 2020 or 2021

Businesses that saw a significant drop in sales from 2019 might be eligible for the Employee Retention Tax Credit. For 2020, businesses that experienced a drop in gross sales that exceeded 50% versus the same quarter in 2019 may qualify for ERC business tax credits. This amount is slightly different for 2021. If a business’ gross sales for any given quarter in 2021 were less than 80% of the gross sales for the same quarter in 2022, it may be eligible for an ERC refund.

Businesses That Qualify as Recovery Start-Ups

Start-up companies might qualify for special tax loopholes for small businesses if they didn’t otherwise qualify for ERC, were opened for business after February 15, 2020, or earned less than $1 million for the 3-year period preceding 2021. Qualified recovery start-ups can only claim this tax credit for Q3 2021 and Q4 2021 for a maximum credit of $50,000 per quarter.

How to Apply for Your Business Employee Retention Tax Credit

Fortunately, it’s not too late for businesses to apply for Employee Retention Tax Credits. The IRS requires eligible businesses to complete and submit Form 941 to claim these ERC small-business tax benefits. However, because businesses now must file for these credits retrospectively, they must instead complete Form 941-X, which is a modified employer quarterly tax form.(5)

Employers must first determine what wages are eligible for an ERC payroll tax refund. For instance, companies with fewer than 100 employees in 2020 or fewer than 500 employees in 2021 can claim all affected earnings as eligible wages. Larger companies with more than 100 workers in 2020 or more than 500 workers in 2021 can only claim the earnings of those employees who didn’t work due to COVID-19 as eligible earnings.

Next, employers must calculate the amount of their small-business tax breaks. For example, businesses can claim 50% of eligible wages, up to $10,000, for the period March 12, 2020, to December 31, 2020, for each qualified employee. For 2021, employers can claim 70% of eligible wages, up to $10,000, per employee for each of the first three quarters.

These calculations can be quite complex, especially for companies with multiple employees. It can also be difficult to determine exactly what work hours are eligible for tax credits. To help with the process, many companies are choosing to work with an ERC firm that can make these determinations. Professional ERC services can ensure employers obtain the maximum available benefit.

Frequently Asked Questions

  • The only types of businesses that are exempt from participating in the ERC tax credit program are government agencies and instrumentalities of the government.(6)

  • Yes. New businesses are eligible for ERC tax breaks for small businesses if they were forced to shut down due to governmental mandates. If a new business doesn’t qualify for traditional ERC credits, it may qualify as a recovery start-up company and be eligible for up to $50,000 in tax credits for Q3 2021 and Q4 2021 respectively.

  • Businesses eligible for Employee Retention Credit benefits include those forced to shut down due to government mandates, those whose earnings dropped significantly from 2019 to 2020 or 2021, and qualified recovery start-ups. ERC specialists can help companies determine eligibility.

  • For businesses with fewer than 100 employees in 2020 or fewer than 500 employees in 2021, employers can claim wages from all employees during an eligible period. For businesses with more than 100 employees in 2020 or more than 500 employees in 2021, employers can only claim the wages of employees who didn’t work during these periods.

  • No, the ERC tax credit includes both eligible wages for both full-time and part-time workers.

  • Yes, start-ups can qualify for ERC credits just like any other company. However, even if a start-up doesn’t qualify for traditional credit, it may qualify for special ERC start-up credits — but only for Q3 and Q4 2021.(7)

  • No. The Employee Retention Credit is not a tax deduction; it's a refundable tax credit. This means that businesses receive this money as a part of a refund, not as a reduction of their income tax.

  • The goals of the American Rescue Plan Act of 2021 are to stabilize the economy and provide economic relief to individuals, families, and businesses. The act extended the ERC program from June 30, 2021, to September 30, 2021, and added assistance options for recovery start-ups.(8)

  • The Coronavirus Aid, Relief and Economic Security Act (CARES) of 2020 provides financial support to individuals, families, and businesses impacted by the global pandemic. The act initiated several programs, including ERC credits, stimulus checks, and the PPP program.(9)

  • Eligible businesses must file for ERC benefits by April 15, 2024, for wages earned during the 2020 tax year and by April 15, 2025, for wages earned during the 2021 tax year. Many businesses choose to work with an ERC company to claim their credits.

  • Yes, businesses can receive ERC benefits even if they already have a PPP loan in place. However, businesses can’t use the same wages used to secure a PPP loan when filing for ERC.

  • No, Employee Retention Credit is not a business loan. Rather, it’s a refundable tax credit. This fact means that businesses don’t have to repay the money they receive.