November 11, 2021

Employee Retention Credit (ERC) could help a lot of businesses thrive if used properly. This is a refundable tax credit that appears to be difficult to attain but is far from impossible. ERC was created to encourage employers to keep employees on their payroll under the CARES Act. Eligible employers have immediate access to ERC by reducing employment tax deposits. Employers may even get an advance payment if the tax deposits are insufficient to cover the credit.

Eligible Employers

The qualifications for the Employee Retention Credit are two main attributes:

  1. Fully or partially suspend operation due to orders from government authority. This would limit commerce, travel and/or group meetings due to the pandemic.
  2. Experience a detrimental decline in gross receipts (income).

The IRS considers a significant decline in gross receipts to be less than 80% of the gross receipts from the previous year. For example: Amazon’s gross receipts for 2020 was 152,757, so if the company earned less than 80% in 2021, then that would qualify Jeff Bezos for the Employee Retention Credit.

How much ERC are you qualified for?

As an employer, you can receive 50% of qualified wages that you typically pay in a year. These wages also include qualified health plan expenses. The maximum amount of qualified wages considered is $10,000, and the maximum credit for wages paid to an employee is $5,000.

Qualified wages

Qualified wages are compensation and health plans paid for by the employer to some or all employees. Paychecks, for instance, are compensated wages.

Qualified health plan

Qualified health plans are group plans covered by the employer that are not reflected in the employee’s gross income.

Additional information

Employee Retention Credit is not compatible with Payment Protection Program (PPP) loans. An eligible employer may only utilize one of these programs under the CARES Act.

Employers are still required to withhold federal taxes on qualified wages. ERC does not make an employer exempt from paying taxes.

Should you find yourself in need of tax relief services, contact Optima Tax Relief at 800-536-0734 for a free consultation.