The Employee Retention Credit (ERC) is a refundable credit established by the Cares Act of 2020 and the Consolidated Appropriations Act of 2021. The ERC provides refundable credits to employers who paid wages to employees in 2020 and 2021 during the Covid-19 pandemic.
Even though the last quarter the ERC can be claimed by qualifying businesses was the quarter ending December 31, 2021, the credit can be claimed and the refunds can be received for any qualifying business that have not already claimed the credit.
Who Qualifies?
Businesses who paid wages to employees between March 13, 2020 and September 30, 2021 qualify if they meet one or more of the following two categories:
1) A business that experienced a full or partial suspension of the operation of their trade or business during any calendar quarter on account of a federal, state, or local governmental order limiting commerce, travel or group meetings due to the COVID-19 pandemic
2) A business that experienced a significant decline in gross receipts by more than 50% in any quarter during the year 2020 when compared to the same quarter in 2019 and/or by more than 20% in any quarter during the year 2020 when compared to the same quarter in 2019
Additionally, a business can receive the ERC refund in the quarters ending September 30, 2021 and December 31, 2021 if they qualify as a Recovery Startup Business (RSB). A qualified RSB is a business that began operations after February 15, 2020 and has had an average of $1 million or less in revenue each year. A RSB also qualifies for the ERC under the conditions listed in categories 1 and 2. Please note that only a qualifying RSB can claim the ERC refund in the quarter ending December 31, 2021.
What’s the Maximum ERC Refund My Business Can Claim?
For 2020, employers can claim up to 50% of the first $10,000 paid to employees during the year. This means an employer can receive up to a $5,000 ERC refund for every employee they paid during 2020.
For 2021, employers can claim up to 70% of the first $10,000 paid to employees during each quarter. This means an employer can receive up to a $7,000 ERC refund each quarter per employee. For non-Recovery Startup Business (RSB), this potentially means a refund of $21,000 per employee for the year and for qualifying RSBs, a potential refund of $28,000 per employee.
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