Small businesses are the backbone of the U.S. economy and have been hit hard by the COVID-19 pandemic. Many small businesses have had to shut down or lay off employees due to the economic downturn caused by the pandemic.
To help alleviate some of the financial strain, the U.S. government introduced the ERC (Employee Retention Credit) program. This program provides a tax credit to eligible small businesses adversely affected by the pandemic.
This article will discuss how small businesses can qualify and apply for the ERC program.
What is the ERC Program?
The ERC program provides a tax credit that small businesses can claim on their federal tax returns. This program was introduced through the CARES Act in March 2020 and was extended through the first three quarters of 2021.
The credit was designed to help small businesses that kept employees on their payroll, even if they weren’t working due to the pandemic. The credit is calculated as a percentage of the wages paid to employees during the pandemic.
Who Qualifies for the ERC Program?
To qualify for the ERC program, small businesses must meet one of two criteria:
- The business had to fully or partially suspend its operations due to a government order related to COVID-19.
- The business experienced a significant decline in gross receipts during any quarter in 2020 or the first three quarters of 2021.
For 2020, a significant decline in gross receipts means that a business’s gross receipts in any quarter were less than 50% of its gross receipts for the same quarter in 2019.
For 2021, a significant decline in gross receipts means that a business’s gross receipts in any quarter were less than 80% of its gross receipts for the same quarter in 2019.
How can Small Businesses Apply for the ERC Program
To claim the ERC, small businesses must first determine the amount of the credit they’re eligible for. This is done by calculating the amount of qualified wages paid to employees during the pandemic.
Qualified wages include:
- Wages paid to employees who were not working due to a government order related to COVID-19.
- Wages paid to employees who were working during the pandemic but whose hours were reduced due to the pandemic.
- Wages paid to employees who were not working during the pandemic but still receiving health benefits.
Once the amount of qualified wages has been calculated, the small business can calculate the amount of credit they’re eligible for. The credit equals 50% of the qualified wages paid to each employee, up to a maximum of $26,000 per employee.
Small businesses can apply for the ERC by completing Form 941-X, the Employer’s Quarterly Federal Tax Return.
Bottom Line Concepts Helps Small Businesses With the ERC
The ERC program is an excellent way for small businesses to get well-deserved relief after weathering the financial storm caused by the pandemic. To find out if your small business qualifies for the ERC, contact Bottom Line Concepts today to determine your eligibility and let us help you with the application process.