FAQs: Employee Retention Credit
What is the ERC?
The Employee Retention Credit (ERC) is designed to help businesses out if they were able to keep their employees on payroll during the COVID-19 pandemic.
Established by the CARES Act in 2020 and expanded in 2021, the ERC is a refundable tax credit. When you claim it retroactively for years 2020 and 2021, it functions as a grant for your business. You do not have to repay the credit.
When does the ERC apply? Will it end?
You can claim the ERC for 2020 and the first three quarters of 2021. This can be done retroactively (i.e. for prior years) by filing an amended quarterly payroll tax return (using Form 941X).
The IRS will issue a check to the taxpayer for the credit amount, plus interest, after processing Form 941X.
You can file for the Employee Retention Credit within three years from the due date of the return. For the second quarter of 2020 for example, the amended return would be due by July 2023.
How can I qualify for the ERC?
Your business can qualify if it meets either of the following conditions:
Full or partial shutdown of your business operations: Was your business ordered to close fully or partially during 2020 or 2021 due to government orders? This can include interruptions to your operations like commerce limitations, travel closures, or group meeting restrictions.
Reduction in gross revenue: Did your business revenue decline by more than 20% from any 2021 quarter, compared to the same quarter in 2019 or the immediate prior quarter?
My revenue didn’t decline. Can I still qualify?
Yes you can! As long as your business operations were interrupted, you can still qualify. Some businesses have even qualified with an increase in revenue.
Will I be taxed on the ERC refund?
The interest that you receive from the IRS as part of the Employee Retention Credit refund is considered taxable income during the period that you receive the payment.
The rest of the funds are considered a deduction for the payroll expense during the qualifying period.
Get Qualified
What are considered operational changes for the ERC?
Wondering whether your business’s operational changes due to a government shutdown qualify you for the ERC? Some impacts which qualify include:
Full or partial suspension of operations.
Changes to your business hours.
Vendor or supply chain interruptions.
Service reductions.
Reductions in your employee workloads.
Disruptions to your business, such as division closures.
Changes to job functions.
Social distancing requirements for employees and customers.
Inability to visit a client site or otherwise travel when needed.
Interruptions to supplier deliveries of critical goods.
Impact on work tasks that couldn’t be done remotely.
Inability to host group meetings.
Can I claim the ERC even if I got a PPP loan, and it was refunded?
Yes. You can claim the Employee Retention Credit (ERC) even if you took out a Paycheck Protection Program (PPP) loan. This applies whether or not your PPP loan was refunded.
Obtaining a PPP loan can change your ERC amount, however. There is no “double dipping,” which means you cannot use the same wages used to qualify for PPP to also qualify for the ERC.
What are the chances that I will get audited?
There is always a chance that the IRS will audit your 940X filing, as there is with any filing.
However, it is unlikely that the IRS will audit you due to their high volume of returns being processed and limited staff levels. The last year that data was available, the audit rate for tax returns related to employment was 3 out of 10,000 (or 0.03%).
While we can’t represent you in the unlikely scenario that you do get audited, we can provide all the supporting documentation needed.
How does the ERC application process work, and how long until I get my funds?
Get assessed by our team - for free!
Fill out a questionnaire in our portal and upload necessary documents.
We help you maximize your Employee Retention Credit and we apply for you (about 4-6 weeks).
You’ll get your check in the mail about 6 months later from the IRS.