The ERC or the Employee Retention Credit was introduced by the CARES Act in the year 2020 when the pandemic struck the nation. This was sent off as an incentive for the small and medium-sized businesses to retain their labor force even during the pandemic situation. 

The ARPA or the American Rescue Plan Act later on extended the eligibility and expanded the credit to $26,000 per employee. You may click here to learn more about ERC or check out the potential benefits. 

A look into the benefits of ERC

Under the ERC program, what is the minimum payroll tax credit that a business can grab? Keep reading.

  • Financial Year 2020: The amount was $5000 per employee and per year
  • Q1, Q2, and Q3 of 2021: The amount was $7000 per employee and per quarter. This is equivalent to a maximum credit of $21,000 for each employee in 2021. 

When a small business firm having just 50 employees is held eligible for the initial three quarters of 2021, it could obtain a $1.050,000 IRS payroll tax credit. Isn’t the amount huge to ward off the pandemic woes?

Understanding the criteria for qualifying

If a business has to become eligible for the ERC, it should have experienced a partial or full suspension of business operations or have reported a drastic decline in total receipts. 

  • The financial year 2020: What is meant by a drastic decline in gross receipts? Well, it is when the business’s gross receipts for a particular quarter are less than 50% of the gross receipts during the same quarter in 2019.
  • Q1, Q2, and Q3 of 2021: In this year, the ‘drastic decline’ meant an 80% decline from the same quarter’s gross receipts of the previous year. 

What about start-up businesses that don’t qualify?

For the third and fourth quarters of 2021, if a start-up business was not eligible according to the two conditions,  it can still qualify for ERC. Thanks to the ARPA (American Rescue Plan Act) of 2021 that there was a new tax credit for RSBs or Recovery start-up businesses. However, the ERC will be capped at $50,000 per quarter for the recovery start-up businesses. 

Therefore, if you’re a business owner who has not yet sought the ERC, you may get in touch with a legal professional who will walk you through the matter.