The Employee Retention Credit (ERC) under the CARES Act was created to encourage businesses to keep employees on their payroll during the COVID-19 pandemic. The ERC provided some relief for employers whose businesses were financially affected by COVID-19.
Even though the ERC has expired, employers who experienced a significant loss of revenue during the period that the credit was effective may still be eligible to claim it.
How does the ERC work?
According to IRS guidance, the ERC is a refundable tax credit based on employee wages paid between March 12, 2020, and December 31, 2020. To claim the credit, employers can retain part of the employment taxes that they would have normally been required to submit.
Who is eligible to claim the ERC now?
To claim the ERC today, private sector businesses or tax-exempt organizations that carried on a trade or business during calendar year 2020 must have:
- Had operations that were fully or partially suspended during any calendar quarter in 2020 due to government orders that limited commerce, travel or group meetings due to COVID-19; or
- experienced a significant decline in gross receipts during a calendar quarter in 2020
A significant decline is calculated by determining the first calendar quarter in 2020 in which the gross receipts were less than 50% of gross receipts of the corresponding calendar quarter in 2019. The period of significant decline ends when 2020 gross receipts return to at least 80% of gross receipts compared with the same calendar quarter in 2019.
Use a trusted provider to determine your eligibility
Beware: Some opportunistic tax consulting firms are charging a rate of 10%-20% to pursue the ERC on behalf of employers.
If you experienced a reduction in revenue, the ERC credit application should be pretty straight forward to submit. If you are considering making claims under other qualifying categories like supply chain issues or having operations fully or partially suspended due to government orders, be sure to check with a qualified and trusted advisor as these issues can be more difficult to demonstrate.