Finance ERC Blog
Is the Employee Retention Credit Your Golden Ticket to a Refund?
Did you know the government is giving money to businesses just to keep their employees on the payroll through the pandemic? If you haven’t heard of the Employee Retention Credit (ERC) or (ERTC), it’s part of the CARES Act Congress passed to help people and businesses keep the lights on through the pandemic. Unlike the better-known Paycheck Protection Program (PPP), ERC, or ERTC, is not a loan. It’s a credit on your taxes for keeping employees on the payroll during the pandemic.
Just like in the classic story of Charlie and the Chocolate Factory, where a lucky few find a golden ticket in their candy bars and win a tour of Willy Wonka’s magical chocolate factory, business owners may have the opportunity to unlock a valuable reward by taking advantage of the ERC.
And if you’re worried that we’ve already moved past the pandemic and you never took your ERC off your taxes, don’t worry. It’s retroactive, which means you can apply to have the government reimburse you for the taxes you overpaid. Who doesn’t love getting a check from the government?
If you’re thinking, “This sounds great! But do I really qualify?” you’re not alone. No one wants to waste time trying to figure out how to fill out various tax documents only to find out they don’t even qualify for the credit they were trying to get!
We can help you solve that problem before it starts by giving you a step-by-step guide to determining whether you qualify for the Employee Retention Credit. Here’s what you need to know:
Check Your Tax Year
First, it’s important to note that only companies that were in business during the tax years 2020 and 2021 are eligible for the ERC. If you didn’t start your business until 2022, you won’t qualify for the ERC.
Does Your Business Qualify as a Recovery Startup Business?
A lot of people were either laid off or furloughed when things first shut down at the beginning of the pandemic. Many of those workers decided to start their own businesses, and since the IRS likes to reward entrepreneurs, it decided that any business that was created after February 15th, 2020 qualifies as a “recovery startup business.” Those companies are eligible for the ERC as long as the business had employees on its payroll. That brings us to the following qualification:
Are You an Employer?
Some businesses start with just one or two people working out of their homes. If you’re the only one running your business, you’re a sole proprietor (or “solopreneur”) and are not eligible for the ERC.
If you have spouses, kids, nieces, and nephews helping you run your business and you don’t pay them a salary, you’re not eligible for the ERC.
If you have part-time employees or independent contractors working for you, that does not qualify you for the ERC, even if you paid them a salary. Only wages for a minimum of 5 full-time employees are eligible for the ERC.
Did You Continue to Operate Your Business During the Pandemic?
Some businesses had to shut down entirely during the height of the pandemic, but many businesses adjusted and did what work they could, even during the shutdown. If you could keep your business up and running during the pandemic, even if you had to reduce the business income, you’ve passed this part of the test to determine if you qualify for the employee retention credit.
Did You Experience a Significant Decline in Business During the Pandemic?
While many businesses suffered losses during the pandemic, certain companies experienced no decline. Some even got more business during the shutdown compared to pre-pandemic life, especially if they were operating online.
One of the keys to qualifying for the ERC is that you need to be able to prove your business made significantly less in overall sales during the pandemic compared to the amount of business you did before the pandemic. The ERC is designed to help struggling businesses, not enrich those already thriving.
Did you Win?
If you meet all the above qualifications for the Employee Retention Credit, congratulations! You may have just unlocked your golden ticket to a valuable refund. To claim your ERC or ERTC refund, you must file Form 941, Employer’s Quarterly Federal Tax Return. You can claim the credit for eligible quarters in 2020 and 2021, and the credit can be applied to reduce the employer portion of social security taxes or as a refund.
If you’re eligible for an ERC refund, don’t wait to claim it! The process can be complicated, but Finance ERC is here to help. Contact us today to learn how we can help you get your ERC refund faster! View the IRS tax code HERE.
All content and information in this post is for informational and educational purposes only; it does not constitute professional advice.
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