The employee retention credit ( ERC) is a fully refundable tax credit and a tax relief for employers affected by the pandemic. Eligible employers can claim up to $7,000 per employee as a reward for retaining their permanent employees. 

And on top of this, if you are a restaurant owner, the federal government can offer you up to $26,000 in wages paid per employee once you qualify. Here, if some mathematical equations start to cook in your mind, let us help you solve them. Here, you will find all the details that will guide you to understand more about how you can check ERC eligibility and the factors associated with it.

Ways To Check ERC Eligibility-

The first thing you must know about ERC eligibility is that it has evolved. So, if in case you had applied for the ERC before and failed to clear it, don't feel disappointed. There have been amendments in the ERC that have loosened the qualification criteria for small businesses. 

Now, every small business employer can apply for the ERC, and once they qualify, they can receive the credit amount. With that said, let's know more about it. 

There are three paths to the ERC credit. A business with W2 employees must fit into one of these- 

Full Or Partial Suspension- 

The first and the most applicable condition to the ERC is this one. You can apply for the credit if your business has gone through a full or partial suspension during 2020. 

The condition applies to all the small businesses with less than 500 employees.

 And in case the business operates in multiple locations with each branch not having more than 500 employees, the business can also check under this criteria. But in this situation, you have to find a collective result for the full or partial suspension results. On that basis, you can still be eligible for the ERC if some of the branches face full suspension and some haven't. 

Gross Receipt-

Your business becomes eligible for the credit if you have a greater than 20% declination in gross receipts for any quarter in 2021 in contrast to the same quarter of 2019. But to qualify for that, you must check on a quarter by quarter basis. 

If an employer owns more than two businesses, let's say a construction company and a restaurant, simultaneously, he can calculate the gross receipts of both of the businesses together to apply for the employee retention credit. And same applies to the multi-unit business. 

The business that started in 2020 can also qualify for the ERC, and we will discuss it further. 

Supply Chain Distribution-

This is the third way that you can check to apply. It was not included at the beginning of the programs, so if you see the mention of it, don't be surprised. 

Supply chain disruption can be caused due to anything from delayed supplies, changes in products, alterations in packaging, etc.

For instance, many restaurants could not get certain types of meat, paper towels, or carryout boxes during the pandemic. Delivery companies were not able to get truck parts or scanners. Hotels could not receive furniture, towels, and sheets because ports were shut down, which planted a halt in renovation plans. These impacts can qualify a small business for the ERC sum irrespective of revenue gain or loss.

Qualifying For The ERC as a Recovery Startup Business- 

Businesses that started after Feb 15, 2020 can apply for the ERC advantages. The federal government is functioning to stimulate the country and help small businesses after the post pandemic. 

The great thing about ERC is that, unlike PPP and some other programs, there are no defined ways recovery businesses must spend the funds, and you don't have to repay them. 

The ARPA enacted into law in March 2021 changed the eligibility criteria for the ERC tax credits and included Recovery Startup Businesses. Which states that- 

• You must maintain average gross receipts and ensure that they do not exceed $1 million in 2020 or 2021. 

• Your business must employ one or more employees other than the 50% owner of your business. 

• And, you must not qualify for any of the other qualification conditions, which are full or partial suspension due to government orders or a decline in gross receipts and supply chain obstruction. 

Calculating The ERC-

The credit calculation is solely based on the number of W2 employees and the year your business qualifies.

As per the IRS issued updates, you can calculate the credit by taking 70% of the qualified wages. The credit is limited to $7,000 per employee. 

If you have less than 100 employees in 2020 and qualify for the credit, you can calculate all the wages paid while your employees were providing services and not providing services in 2020. 

But, if you have more than 100 but less than 500 employees, you can calculate the wages ( including the medical insurance) paid when your employees were providing services to you. 

If you own more than one multi-unit business with more than 100 employees or less, the calculation remains the same (depending on the number of employees)  

The Information Required To Calculate the ERC- 

• Summary of your quarterly revenue

• Your all quarterly payroll tax returns

• Detail of wages paid by the date to every employee 

• Location of your business operations and the number of employees

• Overview of lines of business, including products, services, and business. 

• Detail of wages used for PPP, if any.

• Detail of wages paid to employees for time spent not working.

 The Relation Of PPP and ERC - 

Both of the programs were initiated by the government at the same time. But the difference is most employers have claimed the PPP loan compared to the ERC. Lack of awareness and some legal conditions about the ERC have caused this difference. 

For a long while, the employers who have claimed the PPP loan were not eligible to claim for the ERC. But as a result of the changes, now you can. However, you have to leave the wages you have calculated for PPP. 

That is all. Now, what do you think about the ERC?Do you want to apply for it? Or are you thinking about claiming both the PPP and ERC? In any case, you can visit the website of ERC Specialists. They provide the best ERC and PPP consulting services for all the employers who want to benefit from these programs.