The ERC provides a refundable credit that gives money back to you in the form of a check. You can be a recipient of PPP and qualify for ERC.
This refund is available for the periods 3/13/20-9/30/21
YOU DO NOT NEED A REDUCTION IN INCOME TO QUALIFY
The employer needs to qualify one of two ways:
Financial qualifier:
For 2020 – The employer gross receipts dropped 50% In any one quarter in 2020 compared to 2019
For 2021 – The employer gross receipts dropped 20% in any one quarter compared to 2019
You heard that correctly, the 2021 requirement is much less
Suspension of business qualifier:
Most businesses with qualify with a partial suspension of business. This means that due to government order (city, state, county locality) your business was restricted in its commerce, travel, or meetings. The requirement is that 10% of your business is suspended.
Let me give you an example, a grocery store has a self-service counter as part of its business. Due to state order, the self-service must be shut down. In 2019, self-service provided 10% of gross receipts (as the comparative year). This qualifies you for ERC if the self-service is shut down by state order.
If your business requires permits and the city that provides permits was functioning slowly because they were adhering to the “blueprint for a safer economy” in California, you may qualify.
Most businesses have had to adjust the way they function. Merely changing your meetings to zoom would not qualify unless the work could not be as effective. Non-profits who do many fundraisers could do zoom fundraisers, but they are not usually as effective and therefore they would qualify.
You only need to qualify under the financial qualifier OR the suspension of business qualifier but NOT BOTH.
How does this translate into money in my pocket?
For the time in which you qualify there are refundable credits that we file to get for you. The credit amount is different for 2020 and 2021
In 2020 The maximum credit allowed is 50% of wages up to $10,000 per employee per year.
Example. If you qualify for the ERC for 2020 and you had 99 employees who each earned $10,000 during the qualified period then you could receive a refund of 99 X $5000 or $495,000
For 2021 the amount of credit increases to 70% of wages of $10,000 per QUARTER (that is not a typo). That means each employee could get you a maximum of $21,000 refundable credit in 2021 (three quarters)
Take the same 99 employees above. Do they make $40,000 per year? If so, then you can get a maximum credit of 99 X $21,000 =$2,079,000
There is some strategic thinking that needs to be done to be sure to get the maximum amount of ERC funds.
There are many intricate details that are just too much to explain.
We are licensed professionals who do quality work. If you are interested in learning more, please email michelle@hzcpas.com.
Want more information about Employee Retention Credit? Watch our video below!
