To help struggling American small businesses through the COVID-19 crisis, the federal government enacted Employee Retention Credit (ERC). As an employer, if you are eligible for the ERC, then you can convert the wages and healthcare expenses you paid to the employees into tax credits. But how much ERC can you get?
Luckily, we have the ERC calculator. An ERC calculator is very simple to use and could help you determine how much credit you should get.
Eligibility for ERC
Before you know the potential refund that the IRS might provide you under the ERC, you need to know the eligibility for ERC.
The ERC is computed based on the total number of full-time employees and the sum of qualified wages you disbursed within the period from March 15, 2020, to September 30, 2021.
While most businesses may not qualify to claim the ERC, you might be eligible if your business is classified as a recovery startup business. To meet the criteria as a recovery startup business, you must fulfill these conditions:
- Having a minimum of one worker
- Have gross receipts for the year that are less than $1 million.
- Your business must have begun before or after February 15, 2020.
- Once you’ve determined your full-time employees and the amount of qualified wages, you can estimate your ERC refund.
Determine ERC Eligibility Amounts With Our ERC Calculator
You can use our easy-to-use ERC calculator to check if you meet the requirements. If you do, then you can calculate the amount you can get as credit. The ERC Calculator will prompt you with inquiries regarding your company’s gross receipts and employee numbers, alongside any government directives that might have affected your business during those years.
Understanding the Employee Retention Credit
It’s a relief aid or a type of support established by the US Government to support businesses impacted by the COVID pandemic and subsequent economic challenges. A key aim was to reduce the rate of employee layoffs within the companies.
The program has been notably effective in aiding employers to retain their workforce, especially during financial constraints. Initially introduced as part of the COVID CARES Act, it permitted a maximum tax credit of 50% for each eligible employee’s wages during the period from March 12, 2020, to December 31, 2020. Eligible employers could not exceed a credit of $10,000 in a year during this time frame.
However, authorities subsequently raised the percentage to 70% for 2021, with a potential credit of up to $10,000 per quarter. Businesses with qualifying wages are eligible to apply for the program, irrespective of their size, business sector, or annual revenue. It is important to note that businesses are subject to different regulations based on the number of their employees.
How to Calculate Your ERC Amount Due?
We assist businesses in estimating their possible ERC using a user-friendly online tool. If you require further guidance, we also offer hands-on support.
Here’s a simple four-step process:
- Confirm Your Eligibility: Determine if your business qualifies for the ERC.
- Submit Payroll and Other Information: Provide the necessary data in spreadsheet format.
- Receive Your Credit Calculation: Our team will calculate your credit and provide you with the next steps.
- Claim Your Credit with the IRS: Complete the final step by submitting your claim directly to the IRS outside of this tool.
How Can You Claim the ERC?
According to the guidelines, businesses have two options: either claim the credit retrospectively for a previous period or opt for advance payments. Note that advance payments aren’t available for employers with over 500 employees.
To claim the ERC, you need to initiate your calculation process. Begin by calculating the eligible salaries and subtracting the quarterly deposit related to health insurance costs.
What Is the Process for ERC Approval?
After submitting your application, a state or federal agency in your area can examine your file. The evaluation is usually done for at least two weeks, and it confirms whether your business has submitted all required materials and is also eligible for licensing.
Initially, it was estimated that the ERC grant funds would be delivered to your business after being approved within 30 days. However, the IRS might take far longer than anticipated due to an overload of applications. This money is not actually counted as a form of taxable income but a credit made towards the taxes one might owe on the 2020 earnings.
The ERC serves as a vital lifeline for numerous small business owners grappling with the challenges posed by the COVID-19 pandemic closures and operational constraints. Comprehending the necessary steps to leverage this tax credit effectively is crucial.
Before taking any steps related to this program, it’s advisable to consult with your accountant or financial advisor. Their tailored guidance specific to your unique circumstances will enable you to make well-informed decisions.
Frequently Asked Questions
For the purposes specified in the tax law, ERC equals 70% of the amount not exceeding ten thousand of remuneration per quarter paid to each employee of the company from January 1, 2021, till September 30, 2021. Usually, the business could offer up to twenty thousand dollars of the credit sum for the year and an employee.
Typically, it takes 6-8 weeks to process the ERC refund once employers have applied for it. However, it’s essential to note that the processing time for ERC refunds may differ from one business to another.
Form 7200 is utilized to request an advance payment of employer credits owing to COVID-19. Be aware that the form was no longer available for completion after January 31, 2022.
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