Since 2021, the amount of money your business makes must be less than 70% of what it was in 2019 to receive the employee retention credit. Additionally, the wage for each eligible employee must be at least $10,000 per quarter. While this credit is available to every business, there are a few things companies under 500 employees must know about eligibility.
Table of Contents
Eligibility Overview
The Coronavirus Aid, Relief, and Economic Security Act was established in March 2020 and brought with it the Employee Retention Credit. Companies of every size are eligible for the ERC and may apply it to their past years of operation. In addition, the credit is available to companies forced to suspend operations due to government orders and still pay qualifying salaries to employees.
General Eligibility Requirements
Due to recent legislation, most businesses, schools, hospitals, colleges, and nonprofit organizations are now eligible for the credit. Further legislation expanded the ERC to extend eligibility for companies that had taken out a Paycheck Protection Program loan. To receive the ERC, you must either have had to:
- Stop or reduce operations due to government orders
- Experience a significant decrease in gross receipts
Eligibility Specifics
Generally, if your gross receipts for one quarter in 2020 were half or less of what they were in the same quarter in 2019, you qualify. However, when your gross receipts reach 80% of what it was in the corresponding quarter in 2019, you are no longer eligible. That said, it is also possible to receive this credit if you were forced to shut down or reduce operating hours due to government orders.
Employee Eligibility
Qualified salaries, including health plans and other benefits, distributed during a quarter where business activities were stalled count towards ERC credit eligibility. However, you have to ensure your employees have a qualified salary to know if they are eligible—unfortunately, the definition of this type of salary changes based on the size of your business.
Qualification Eligibility
Employees must be deemed qualified according to IRS standards based on your business structure. In addition, all employers must meet the requirement that they have had a significant decrease in gross receipts. If they don’t meet that requirement, they can still make their employees eligible by demonstrating a full or partial shutdown due to government orders.
Eligible Business Types
Any for or not-for-profit firm that had to shut down entirely or partially due to government orders or saw a significant decrease in revenue is eligible. However, whatever the type of business, companies can only count their employees if the ones affected provided at least 10% of gross receipts or 10% of the total hours worked.
Refund Details
The refund equals half of an employer’s eligible salaries and can go towards various employment taxes. The goal of the ERC is to keep employees paid, even when their employers are shut down. Therefore, the business that saw a significant reduction in gross receipts or was forced to entirely or partially shut down is eligible.
Qualification Process
Eligible firms must report their qualifying salaries on their Form 941 every month. That can lower a company’s federal employment tax by half an employee’s salary. If you have already filed Form 941 for a specific quarter, you can update it to receive your refund.
Eligibility Misinformation
While the government has allotted billions of dollars to the ERC, millions of small business owners will let it go unclaimed. Chances are, your payroll agency, bookkeeper, bank, and tax professional have all given you conflicting advice. Because of these inconsistencies, many business owners let the money go unclaimed.
If your company’s gross receipts decreased in 2020 and 2021 compared to 2019, you may be eligible to receive the ERC. This credit’s point was to keep employees on the payroll during the pandemic. Recent extensions have made this credit available to more businesses. Make sure to learn more about the ERC to see if you are eligible for it. The money from it can offer critical financial relief for your business.
