ERC Qualification

We are experts in helping businesses qualify for the Employee Retention Credit, having processed ERCs for more than 100 clients.

We will do all of the heavy lifting for you, but for the curious the general qualification guidelines can be found below.

Step 1 - Has Your Business Experienced a Decline In Revenue?

 

Start by comparing revenue in a calendar quarter in 2021 to revenue in the same calendar quarter in 2019 - if the calendar quarter in 2021 is 20% lower than the same quarter in 2019, your business qualifies for the ERC in that quarter. Each quarter is evaluated on an independent basis; not qualifying in one quarter does not preclude you from qualifying in another.

Example:

Q1 2019 Revenue - $100,000

Q1 2021 Revenue - $75,000

Decrease in Revenue: 25% - Qualifies for ERC

For 2020 the same test is applied comparing to calendar quarters in 2019 (e.g. Q3 2020 vs. Q3 2019) but requires a 50% reduction in quarterly revenues to qualify.

Step 2 - How Many W-2 Employees Do You Have?

 

All W-2 employees who received wages in the qualifying quarter are eligible for ERC, except for owners and their relatives.

To qualify in 2020, your business must have had fewer than 100 employees as of December 31, 2019.

To qualify in 2021, your business must have had fewer than 500 employees as of December 31, 2019.

Step 3 - Determine Qualified Wages + Health Expenses

 

All taxable wages paid to employees and health insurance premiums paid on behalf of the employee by the employer are eligible for ERC up to a total of $10,000 per quarter.

Wages during a Paycheck Protection Program (PPP) forgiveness covered period are not eligible for ERC. Don’t worry, we know exactly how to handle PPP and ERC interactivity while maximizing your company’s benefit under each!

Step 4 - Apply the Credit Calculation

 

For qualifying quarters in 2021, the ERC is equal to 70% of qualified wages and health expenses. Therefore, the maximum credit per employee in any one quarter in 2021 is $7,000 (70% x $10,000 maximum qualified wages). There is no limit on how many quarters an employee can qualify for in 2021, so the maximum credit per employee in 2021 is $21,000 (3 quarters x $7,000 per quarter)

For qualifying quarters in 2020, the ERC is equal to 50% of qualified wages and health expenses. Therefore, the maximum credit per employee in any one quarter in 2020 is $5,000 (50% x $10,000 maximum qualified wages). Unlike for 2021, in 2020 the total credit available per employee is limited to $5,000 no matter how many quarters the business qualifies for.

Therefore, the maximum total credit a single employee could qualify for (assuming the business qualifies in all eligible quarters) is $26,000.

For a company with 30 employees, this would be equal to $780,000 of tax credits!

Step 5 - Complete Form 941-X For Qualifying Quarters

 

The credit is claimed by filing amended payroll tax filings known as a form 941-X.

Complete ERC’s CPAs will prepare and sign the form 941-X. We will send them to you to sign, and you mail the returns to the IRS for processing. Once approved, the IRS will cut a check for your tax credit; simple as that!