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The Employee Retention Credit (ERC)

The ERC, or Employee Retention Credit, is a refundable credit worth up to $26,000 per employee. The credit is one of the most confusing, least understood, yet generous COVID incentives out there and one of the only that you can still claim. I suspect over half of the businesses that qualify for this credit are not going to take the free money!

Does my small business qualify for the ERC?

There are many reasons that business owners don’t know they qualify, the biggest being how the credit changed at the end of 2020, which blew past many business owners and accountants. To this day, I have heard clients and some CPAs claim that a business can’t qualify for the ERC because they already got the PPP loan or because there wasn’t a drop in revenue. This is false.

When it became obvious that no one was taking advantage of the ERC because of the PPP, Congress passed multiple amendments to how the ERC worked, making it more generous and available to more businesses.

Congress improved the ERC in order to:

  • Retroactively allow PPP recipients to take advantage of the ERC. (Prior to the update, you could take advantage of one or the other. Now you just can’t double dip on the same wages.)
  • Expand the credit to be 70% of $10,000 of wages per employee per QUARTER, where as before it was was 50% of $10,000 of wages per year. (This is how we get the $26,000 number: $7k for three quarters in 2021 and $5k for 2020.)
  • Expand the definition of being “partially suspended” or “impacted” to qualify for the credit. This was huge. Most businesses open to the public in Washington state and many other states were subjected to government-mandated shutdown orders and capacity limits that qualify them for these credits.
  • Change the gross receipts test from a 50% drop to a 20% drop compared to 2019, which means many more businesses are qualified even if they weren’t subjected to a governmental suspension order.
  • Change the definition of a small employer from under 100 full-time employees to under 500 full-time employees.

What does this mean for my small business?

This means if you had your doors open to customers during 2020 and 2021, you most likely qualify for the credit! We are seeing huge credits for small business owners and they’re often bigger or comparable to the PPP loans.

Many CPA firms do not know that the credits apply to their clients or offer to file the necessary amendments. This is understandable, as the amount of work over the last two years for CPAs and accountants has skyrocketed. Many have left the profession, causing us tax preparers to be over worked as our role has expanded. Many firms simply don’t have the capacity to help their clients navigate the ERC.

How can I take advantage of the ERC?

The team at Olympia Tax Service is happy to work with your CPA firm to make sure you get all the cash you deserve!

Time is running out. The refundable credits are based on amended payroll (941) tax returns and the window to amend starts closing next year. Contact Olympia Tax Service today to see if you qualify.

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