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Important facts about ERC

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What is ERC?

Employee Retention Credit (ERC) or Employee Retention Tax Credit (ERTC) is a credit benefit coined by the United States Federal System. It is a refundable tax credit for encouraging employers to retain employees under their payroll and suspend themselves from attriting their employee force.

ERC/ ERTC was designed as a part of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) undersigned by then President Donald Trump.

Who is Eligible?

Employers and businesses of all sizes are eligible for availing this return benefit provided they meet two basic guidelines:

  • The employer's business was fully or partially suspended due to the orders placed by the US Government during the COVID-19 limitations. This must have affected 10% or more working hours of the employer and hence profit returns as compared to the consecutive quarter in 2019.
  • The employer's gross receipts were 50% or less than 50%as compared to that of 2019.

Who is not Eligible?

  • A business that has achieved gross receipts above 80% as compared to that of 2019 is not eligible to file for ERC/ ERTC.
  • A household employer is not eligible.
  • Self-employed individuals are not eligible to apply for the compensation however they may apply the same for their employees.

How is ERC benefitting?

  • During the COVID-19 pandemic, many businesses had to partially or fully dismantle themselves due to government guidelines. Industries like retail, hospitality, tourism, education, etc. were adversely affected. This crisis in turn has led to high attrition levels in many companies/ firms/ businesses, leading to a rise in unemployment. Employee Retention Tax Credit serving all those businesses with refunding up to $10,000 per employee, encouraged these businesses in retaining their employees and maintaining a stable payroll despite the financial dip during the period.
  • The employer receives tax return benefits in the amount of ERC.

Calculation of the credit

  • The amount of eligible credit is 50% of the wages that is up to $10,000(not more than an employee whose qualifying wages is above $10,000) per employee. 
  • The application is effective for returns over the wages paid after March 13th, 2020, and before December 31st, 2020.
  • If the business had 100 or lesser employees in 2019, the credit eligibility is based on the wages of all the employees whether they worked or not. If the business had more than 100 employees in 2019, then the same is eligible for only those employees who did not work/ get paid during that period.

ERC service offered by National Tax Attorney has helped many big and small businesses to shield the loss they faced during the pandemic and also helped them in supporting their employees to a great extent.