The COVID-19 pandemic has had a significant impact on small businesses, and to support them in retaining their employees, the federal government has introduced the Employee Retention Credit (ERC). In this article, we will provide an overview of what the ERC is, how it works, and how it can benefit small businesses located in Washington, Oregon, and Idaho.
Tri-Cities Tax and Accounting is a tax and accounting firm that provides expert advice on tax-related matters to small businesses in Washington, Oregon, and Idaho. Our team of experienced tax professionals can help your business determine if you’re eligible for the ERC and assist you in claiming the credit.
Understanding the ERC
The Employee Retention Credit is a refundable tax credit that was introduced under the CARES Act in March 2020 to encourage small businesses to keep their employees on payroll during the COVID-19 pandemic. The ERC is a credit against certain employment taxes and is calculated based on the wages paid to employees.
How Does the ERC Help Small Businesses?
The ERC provides a valuable financial incentive for small businesses to keep their employees on payroll during the pandemic. By providing a refundable tax credit, the ERC can help businesses save money and retain valuable employees. The credit is calculated as a percentage of the wages paid to employees and is applied against the employer’s share of social security tax. In some cases, the ERC can be claimed retroactively for the 2020 tax year.
ERC Eligibility
To be eligible for the Employee Retention Credit (ERC), a business must meet specific criteria. The first requirement is experiencing a significant decline in gross receipts due to the pandemic or being subject to a government-mandated shutdown. However, the eligibility criteria differ between the ERC under the CARES Act and the ERC under the Consolidated Appropriations Act, 2023.
Under the CARES Act, a business can claim the ERC if it suffered a substantial decrease in gross receipts of 50% or more in any quarter of 2020 compared to the same quarter in 2019. Alternatively, if the business was fully or partially suspended due to a government-mandated shutdown, it can also claim the ERC.
Under the Consolidated Appropriations Act, 2023, a business can claim the ERC if it experienced a significant decline in gross receipts of 20% or more in any quarter of 2023 compared to the same quarter in 2019. Additionally, if the business was fully or partially suspended due to a government-mandated shutdown, it can also claim the ERC.
How to Claim the ERC
To claim the ERC, a business must file Form 941, the Employer’s Quarterly Federal Tax Return. The ERC is claimed as a credit against the employer’s share of social security tax. If the amount of the credit exceeds the employer’s social security tax liability, the excess credit is refunded to the business.
Documentation Required Claiming the ERC
To claim the ERC, a business must retain documentation to support the credit claimed. This documentation includes records of employment taxes, quarterly financial statements, and other documents that show a decline in gross receipts or a government-mandated shutdown.
Maximum Amount of ERC That a Business Can Claim
Under the CARES Act, a business can claim up to 50% of the qualified wages paid to employees, up to a maximum credit of $5,000 per employee for the entire 2020 tax year.
Under the Consolidated Appropriations Act, 2023, a business can claim up to 70% of the qualified wages paid to employees, up to a maximum credit of $7,000 per employee per quarter for the first two quarters of 2023.
Interaction with Other COVID-19 Relief Provisions
The ERC can be claimed in addition to other COVID-19 relief provisions, such as the Paycheck Protection Program (PPP) and the Families First Corona virus Response Act (FFCRA). However, a business cannot claim the ERC on wages that were paid with PPP funds that were forgiven or on wages that were used to claim FFCRA tax credits.
Employee Retention Credit Washington State
Small businesses in Washington State can benefit from the ERC if they meet the eligibility criteria. With the help of Tri-Cities Tax and Accounting, small businesses in Washington State can determine if they’re eligible for the credit and how to claim it. Our team of tax professionals can guide you through the process of claiming the ERC and ensure that you’re taking advantage of all the tax credits and deductions available to your business.
What is the Employee Retention Credit (ERC)?
The Employee Retention Credit (ERC) is a refundable tax credit that was created as part of the Corona virus Aid, Relief, and Economic Security (CARES) Act in 2020 to help businesses retain their employees during the COVID-19 pandemic. The credit is intended to encourage businesses to keep employees on their payroll even if the business is experiencing financial difficulties.
Who is eligible for the ERC?
Businesses of all sizes, including tax-exempt organizations, may be eligible for the Employee Retention Credit (ERC), subject to certain exceptions. The eligibility criteria for the ERC involve two possible scenarios. Firstly, a business may qualify if it was fully or partially suspended by a government order due to COVID-19. Secondly, the business may qualify if it experienced a significant decline in gross receipts in a calendar quarter compared to the same quarter in 2019. It is worth noting that specific rules apply to determine what constitutes a significant decline in gross receipts, depending on the legislation in place at the time.
What is the maximum amount of ERC that a business can claim?
The ERC provides eligible businesses with a maximum credit amount of $33,000 per employee for wages paid between January 1, 2023, and December 31, 2023. This represents a significant increase from the previous maximum credit amount of $7,000 per employee for wages paid between March 13, 2020, and December 31, 2020. It is important to note that this maximum credit amount is subject to certain restrictions and limitations based on the business’s payroll tax liability and other factors.
How does a business claim the ERC?
Businesses can claim the ERC by reporting it on their federal employment tax returns, such as Form 941, Employer’s Quarterly Federal Tax Return. The credit can be used to offset the employer’s portion of Social Security taxes.
What is the difference between the ERC under the CARES Act and the ERC under the Consolidated Appropriations Act, 2023?
The Employee Retention Credit (ERC) has undergone changes under different legislation. The ERC under the CARES Act allowed for a credit of 50% of qualified wages up to $10,000 per employee for wages paid between March 13, 2020, and December 31, 2020. However, under the Consolidated Appropriations Act, 2023, the credit has been expanded to 70% of qualified wages up to $10,000 per employee for wages paid between January 1, 2023, and December 31, 2023.
Can a business claim both the ERC and the Paycheck Protection Program (PPP) loan?
A business cannot claim the ERC on wages that were paid with PPP funds that were forgiven or on wages that were used to claim FFCRA tax credits. However, a business can claim the ERC on wages that were not paid with PPP funds and were not used to claim FFCRA tax credits.
How does the ERC interact with other COVID-19 relief provisions?
The ERC can be used in conjunction with other COVID-19 relief provisions to provide additional financial support to businesses affected by the pandemic. For instance, the ERC can be claimed in addition to PPP loans, as long as the same wages are not used to calculate both credits. Similarly, businesses can claim the ERC in addition to FFCRA tax credits for paid sick leave and paid family leave. However, the wages used to calculate the ERC cannot be used to also claim the FFCRA tax credits.
Can a tax-exempt organization claim the ERC?
Yes, tax-exempt organizations are eligible for the ERC, with a few exceptions.
What documentation is required to claim the ERC?
To claim the ERC, a business must maintain documentation to support its eligibility for the credit, including records of its gross receipts and qualified wages. The IRS has provided guidance on the documentation requirements for the ERC.
How long is the ERC available for?
The ERC is available for wages paid between March 13, 2020, and December 31, 2023. However, the Consolidated Appropriations Act, 2023, extended the availability of the credit to wages paid through June 30, 2023, for recovery startup businesses.
The Employee Retention Credit (ERC) was designed to help businesses that continued to pay employees while shut down or partially shut down due to Covid-19 or had significant declines in gross receipts from March 13, 2020 to December 31, 2021. This is a complex credit that requires the expertise of a CPA firm that actively pursues this credit for this client. The IRS has warned businesses to be cautious of advertised schemes and solicitations that promise tax savings that simply do not exist without actively qualifying each potential business. Tri-Cities CPA, PLLC began developing strategies and methodologies as soon as the IRS released the guidance for the Employee Retention Credit (ERC). A common theme among our clients that now qualify for the ERC was that they did not believe they would qualify. Let us analyze your data and let us identify if you qualify and how much credit is available to you.
The Employee Retention Credit is valuable tax credits that can help small businesses retain their employees during the COVID-19 pandemic. Small businesses in Washington, Oregon, and Idaho can benefit from the ERC if they meet the eligibility criteria. Tri-Cities Tax and Accounting can help your business determine if you’re eligible for the credit and guide you through the process of claiming it. Contact us today to learn more about how we can help your business take advantage of the ERC and other tax credits and deductions available to you.
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