Frequently Asked Questions About the ERC Tax Credit

Liberty Payroll & HR has been successful in helping clients receive over $20,000,000 in ERC money from the IRS!

The ERC tax credit program continues to provide a wide array of employers impacted by the COVID-19 pandemic with lucrative refundable tax credits for qualified wages paid to employees in 2020 and 2021.

Businesses can still apply for the Employee Retention Credit by filing an amended Form 941X (Quarterly Federal Payroll Tax Return) for the quarters during which the company was an Eligible Employer.

Liberty Payroll & HR is leading the industry in obtain ERC money for its clients. Why? Because Liberty Payroll and HR is run and managed by accountants which gives you many advantages. In this article, we will describe what ERC is and answer the most frequently asked questions about this limited relief program offered by the federal government.

How does the ERC Tax Credit work?

The ERC is a refundable payroll tax credit offered to reward employers who retained staff during the COVID-19 pandemic that can be as high as $5,000 per employee in 2020 and as high as $21,000 peremployee in 2021.

Who qualifies for the Employee Retention Credit?

Employers that experienced partial suspensions of operations (shutdowns) due to government orders (Restaurants limited dining room capacity or worksite limit in construction in NYC for example) or that experienced significant declines in quarterly gross receipts (as compared to their quarterly gross receipts in 2019) are eligible employers under this program.

What are ERC Qualified Wages?

ERC credits are calculated based on the qualifying wages paid to employees during employer eligible period (quarters with a decline in sales or shutdown period). For most companies taking advantage of this program, the refundable tax credits are substantially more than the payroll taxes paid by the employers. ERC benefits can be larger than the amounts a company received in PPP funding.

Are benefits of the Employee Retention Credit the same for small and large companies?

Small employers, those with a Full Time Equivalent workforce in 2019 of less than 100 or 500 are eligible for ERC in 2020 and 2021 respectively. Any employer with a fte more than 100 or 500 in 2019 for 2020 and 2021 respectively can not qualify for the credit.

How do I calculate if the company is a large or small employer for ERC?

  • When applying for ERC for 2020, an employer with 100 or fewer average full-time employees (as measured in 2019) is defined as a small employer.
  • When applying for ERC for 2021, an employer with 500 or fewer full-time employees (as measured in 2019) is defined as a small employer.
  • The term “full-time employee” means an employee who, with respect to any calendar month in 2019, had an average of at least 30 hours of service per week or 130 hours of service in the month (130 hours of service in a month is treated as the monthly equivalent of at least 30 hours of service per week), as determined in accordance with section 4980H of the Code. An employer that operated its business for the entire 2019 calendar year determines the number of its full-time employees by taking the sum of the number of full-time employees in each calendar month in 2019 and dividing that number by 12. Special rules apply to those who were not in business all of 2019.

Is ERC only for my full-time employees?

No.  An employer may include wages paid to part-time and full-time employees in the calculation of the ERC.  The only limitation on the calculation of the credits is that an employer may only calculate the credits on the first $10,000 of wages and health plan costs paid to each employee during each credit-generating period.

What periods does the Employee Retention Credit cover?

If eligible, employers can claim the ERC for qualified wages paid in 2020, as well as Q1, Q2 and Q3 of 2021 for businesses that began operations before 2/15/20. For businesses that began operating after 2/15/20 and that had less than a million dollars in sales, recovery startup businesses, they can qualify for 2021: Q3 and 4 (up to $50,000 per quarter maximum).

Is there still time to apply for the ERC tax credit?

Yes.  The statute of limitations for the 2020 ERC tax credit does not close until July 31st, 2023 (3 years from the due date of the payroll tax return).  The statute of limitations for the 2021 ERC tax credit does not close until October 31st, 2024, for non-recovery startups and January 31st, 2021.

What is the difference between wages utilized in the R&D credit and wages in the ERC calculations?

  • Wage expenses that qualify as both ERC-eligible Qualifying Wages and Qualified Research Expenses for R&D Credit purposes still need to be included as QREs in the base year calculations for future year R&D Credit calculations.
  • Wages funded by PPP can be included in the R&D credit calculation.
  • Wages funded by the PPP can not be used for ERTC
  • Wages funded by PPP can be included in RRF expense reporting

What is considered gross receipts for ERC?

  • For taxable entities:
    • Total sales (net of returns and allowances) and all amounts received for services.
    • Tax accounting method for income recognition applies.
    • It does not include PPP funds!
  • For non-taxable entities:
    • Gross Receipts means gross receipts of the taxable year and generally includes all receipts.
    • Tax accounting method for income recognition applies.
    • It does not include PPP funds!

Does the Employee Retention Credit have to be paid back?

No. The Employee Retention Credit is a fully refundable tax credit that eligible employers claim against certain employment taxes. It is not a loan and does not have to be paid back. The refundable credit is more than the payroll taxes paid it is a credit based on the gross social security taxable wages and it is received in the form of check(s) form the IRS for each quarter amended, plus interest.

How do I apply for ERC?

Going forward, the only way to apply for the ERC tax credit is to file an amended Form 941X (Quarterly Federal Payroll Tax Return) for the quarters during which the company was an eligible employer. To get started, call (973) 690-5200. The experts at Liberty Payroll & HR will take care of the process for you, step by step.

Can I qualify for ERC if I received a PPP Loan?

Yes. While an employer may not include wages funded by a PPP loan in the ERC calculation, PPP funds only apply to eight to 24 weeks of wage expenses. PPP loans can also fund non-wage expenses. The ERC eligibility periods may be longer.

For ERC purposes, it is most important to develop work papers that allocates the wages used for ppp according to what was reported to the SBA using from 3508.

PPP funding may be allocated to wages that would not generate any ERC (e.g., to owners of the company or to wages more than $10,000 in one of the four ERC credit-generating periods).

Can religious organizations receive ERC money?

Yes. The Employee Retention Credit is available to churches and other religious organizations that were impacted by government-ordered capacity restrictions on gatherings or that experienced significant declines in gross receipts.

What types of businesses qualify for ERC?

A wide range of employers qualify for the ERC, including businesses in the following industries:

  • Education
  • Government Contractors
  • Healthcare and Life Sciences
  • Hospitality and Retail
  • Industrial
  • Not-For-Profit
  • Professional Services
  • Real Estate and Construction
  • Technology
  • Car Dealerships

Helpful Resources:

If you are interested in speaking to a professional and learning more about the ERC tax credit, call Liberty Payroll & HR today at 973-690-5200.

As a local company serving NJ and NY, we understand your business and the laws effecting payroll and HR. We were founded by accountants, and that means accuracy is our mission. Helping our clients understanding Employee Retention Credits is part of our service to our customers. Liberty Payroll and HR continues to lead the way in outsourced payroll services throughout NJ and NYC.

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