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See How to Determine Eligibility And Claim Your Employee Retention Credit

June 10, 2022

The Employee Retention Credit (ERC) is a payroll tax refund born out of the same COVID relief bill as the Paycheck Protection Program (PPP), giving an incentive to businesses who kept employees on payroll during the pandemic. Initially, companies were limited in their ability to claim either PPP or ERC, but not both.

Many business owners aren’t aware that it’s still possible to claim this generous tax credit, or believe that if they applied for  PPP, a small business loan funded by the government, they cannot also apply for the ERC. However, the rules changed in early 2021 and now your business can claim ERC even if you received PPP funds. Believe it or not, the IRS estimates that more than 80% of the businesses who apply for the credit do qualify.

This article will help you find information on the ERC, determine eligibility, and understand the next steps to claim it.

What Is the Employee Retention Credit?

The Employee Retention Credit incentivized businesses to retain employees during the pandemic by offering up to $26,000 per employee in tax credit for 2020 and quarters one through three of 2021. The amount of credit eligible businesses may receive is based on the wages paid to employees during that time frame. Eligible companies may claim the ERC by amended quarterly IRS payroll tax returns—meaning it’s still possible to receive this credit for your small business.

Learn How to Apply

Determining Eligibility for the Employee Retention Credit

Eligible Employers that are entitled to claim the ERC are private-sector businesses and tax-exempt organizations that carried on a trade or business during calendar year 2020 and/or 2021 that either:
  • Had operations fully or partially suspended during any calendar quarter in 2020 or 2021 due to orders from an appropriate governmental authority that limited commerce, travel, or group meetings due to COVID-19; or
  • Experienced a significant decline in gross receipts during the calendar quarter respective to the same quarter in 2019.

Businesses that may be eligible include retail stores, restaurants, schools, hospitals, non-profit organizations, museums, and even churches. Companies that are not eligible are local, state, and federal government entities, and self-employed individuals with no full-time employees on their payroll.

Here are several conditions you may need to meet in order to qualify:

  • Decrease in hours of operation
  • Disruption to supply chain
  • Inability to attend in-person trade shows
  • Impacted due to staff working from home

If you've been told your business is disqualified from the ERC because you receive a PPP loan, that's no longer the case. Even many CPAs are unaware of the Consolidated Appropriation Act (CAA) that extended and expanded eligiblity to include a provision allowing 2020 PPP borrowers to also apply for the ERC

How Do You Apply for the Employee Retention Credit?

First, determine which wages qualify for Employee Retention Credit. The IRS will need to know the average number of full-time employees in your business before the pandemic (2019). If you had 100 or fewer full-time employees in 2019, the IRS considers your business small. However, in 2021, your business is deemed small if it had 500 or fewer average full-time employees. For the Employee Retention Credit, a full-time employee must have worked 30 hours per week or 130 hours per month for a calendar month.

Next, calculate your qualifying wages. Qualifying wages start on March 13, 2020, including paid time off, contributions to furloughed employees, and most employer healthcare contributions. You are required to justify only the wages up to the per-employee maximum for 2020 (50% of qualifying wages, up to a maximum credit of $5,000 per employee ) and each of the first three quarters in 2021 (70% of qualifying wages up to a maximum credit of $7,000 per employee, per quarter).

Lastly, claim the Employee Retention Credit on your business's amended quarterly payroll tax returns. While you can receive money through both the PPP and ERC, it’s important to pay close attention to where they come from so that they do not overlap. If you paid wages through a PPP loan, you cannot use the same wages to apply for an ERC as well. However, you can use wages that exceed the amount of the loan.

To help determine eligibility, calculate qualifying wages, and file for the Employee Retention Credit, be sure to have all necessary documentation on hand. This includes, but is not limited to the following:

  • PPP documentation and wages paid using the PPP loan
  • Healthcare contributions
  • Full-time employees on payroll and their qualified wages
  • Completed tax returns for 2019, 2020, and 2021
  • Quarterly revenue reports for 2019, 2020, and 2021

While we understand this sounds like a lot of work, it takes a little over 10 minutes to complete the initial form to determine your eligibility, and keep in mind it's possible to claim up to $26,000 per employee for 2020 and 2021.

Learn How to Apply

When Is the Deadline to Apply?

The good news is you have three years to amend your tax return from the date of filing to claim your ERC. However, it helps to have some sense of urgency, considering the funds will eventually run out (as they did in the case of PPP loans); it’s best to act now.

Unlock the Benefit of the Employee Retention Credit

The Employee Retention Credit can provide your business with a significant amount of money, so don’t let it sit on the table.

At Citizens State Bank, we offer many services to small businesses like yours in Indiana, including online resources for business loans, cash flow, and assistance with ERC.

We understand that this process is complex, which is why we partner with our friends over at Innovation Refunds to help you maximize this opportunity. They have a team of CPAs, attorneys, and other experts who specialize in applying for the Employee Retention Credit.

We want to help you claim the money your business is entitled to receive.

With nearly 80% of businesses meeting qualifying criteria, now is the perfect time to request your refund estimate.

Learn How to Apply

*Citizens State Bank’s website contains links or references to other websites. Citizens State Bank does not endorse, approve, certify, or control those external sites and does not guarantee the accuracy, completeness, efficacy, timeliness, or accurate sequencing of the information contained on them.

All applicants are subject to Tax Evaluation by Innovation Refunds. Pre-qualification is not a guarantee of approval. Citizens State Bank of New Castle is not providing tax advice; refer any tax related questions to a licensed tax professional.

Citizens State Bank of New Castle is not affiliated with Innovation Refunds and has no involvement in the approval process. Citizens State Bank makes no representation or warranty as to the quality, accuracy, or reliability of Innovation Refunds website or this service in general.

Citizens State Bank may receive compensation for referrals made through approved channels. Your decision whether or not to utilize Innovation Refunds to obtain the described credit will have no impact on any rates or fees charged or paid to you by Citizens State Bank of New Castle.