How Much ERC Credit Are You Eligible For? Probably More Than You Think

Good news: there’s still time to get the Employee Retention Credit (ERC) tax credit! You may be eligible for millions in IRS returns, depending on the number of people you employ and how the pandemic affected your business.

The question is, how much are you eligible for? At LG Resources, we’re here to help you figure that out. 

WHAT IS THE ERC CREDIT?

The Employee Retention Credit or ERC credit is a refundable tax credit for businesses, nonprofits, and other organizations. Organizations can claim credit based on their circumstances in 2020 and 2021 and the qualified wages they paid at the time, including health insurance costs. You can retroactively claim the credit until 2025.

In some situations, the ERC can provide a very large amount of cash. Some organizations are eligible for as much as $26,000 per employee.

To see if you qualify for the ERC and how much you are eligible for, contact us today.

THE ERC TAX CREDIT QUALIFICATION RULES

There are two broad ways to qualify for the ERC. Each qualification comes with its own rules that can be complex to interpret, so we’ll start with a simple overview.

Your organization probably qualifies for the ERC if you experienced one or both of these situations in 2020 or 2021:

• A significant decline in gross receipts. The IRS asks you to measure your gross receipts for each quarter in 2020 and 2021 relative to your pre-COVID (2019) gross receipts. The amount of reduction you had to see to qualify for the ERC was different for 2020 and 2021.
• Suspended business operations (full or partial). If a government authority required you to partially or fully shut down your business at some point in 2020 or 2021, you are probably eligible for the ERC. Having a vendor or supplier that had to shut down can count as suspended business operations in some cases. Being limited by an inability to travel, commerce, or restrictions on meetings can also count.

You can only qualify for the ERC if you operated a business or carried a trade before February 16, 2020. Businesses and nonprofits of any size can be eligible, but the rules for which wages can count toward the ERC calculation are different for large and small organizations.

To qualify as having experienced a significant decline in gross receipts, your organization must have had at least 50% less income in 2020 compared to 2019 or 20% less income in 2021 compared to 2019.

HOW MUCH ERC MONEY CAN YOU GET?

The amount of ERC credit you are eligible for depends on the number of qualified employees you had at the time and how much you paid them. Both wages and group health plan expenses count toward your credit.

In the right circumstances, you can get up to $26,000 per employee through the ERC program. There is no limit on funding, so this can be an enormous credit for organizations with many employees.

For 2020, your ERC credit is calculated at 50% of qualified employees’ wages up to $10,000 for the year. In other words, you can receive up to $5,000 per employee for the 2020 calendar year. For 2021, your ERC credit is 70% of qualified employees’ wages up to $10,000 per quarter. In other words, you can receive up to $7,000 per employee for each quarter in 2021.

Keep in mind that majority business owners and their family members’ wages do not count toward the ERC. If you and/or your family members together own 51% of the business or more, your wages do not qualify for the ERC credit. However, if you and your family together own only 50% of the business or less, your wages still qualify for the ERC.

You do not need to pay income tax on ERC funds. However, the ERC can reduce expenses you could otherwise deduct. You are generally not allowed deductions for a portion of paid wages equal to the ERC funds you received for the taxable year. We recommend waiting to use your funds until after you’ve talked to a tax preparer or CPA.

HOW TO DETERMINE YOUR ERC ELIGIBILITY

The wages that count toward your ERC calculations depend on the size of your organization. If you are a small employer, you can count wages paid to all employees. If you are a large employer, you can only count wages (including health insurance) paid to employees while they were not working.

Now you may be wondering: Are we considered a large employer or a small employer? Once again, the rules are different for 2020 and 2021:

• For the 2020 ERC, you are considered a small employer if you had 100 or fewer average full-time employees in 2019.
• For the 2021 ERC, you can still count as a small employer if you had 500 or fewer average full-time employees in 2019. A full-time employee must work an average  of30 hours per week or 130 hours per month. There are special rules for employers that weren’t in business for all of 2019.

SHOULD YOU USE AN ERC BROKER?

Working with an ERC broker can help you get the full amount of credit you’re eligible for. ERC brokers and their teams may be aware of lesser-known rules that affect your eligibility, leading to a higher claim amount that matches IRS compliance and regulations.

At LG Resources, we partner with ERC Specialists to help companies get the full ERC funding they are eligible for. LG Resources and ERC Specialists can help you determine your eligibility, review required payroll information and PPP wages, deliver an audit-ready package, and find other credit opportunities.

The ERC Specialists team’s Advisory Board Members include a Former US Attorney General and the current State of Utah Attorney General. ERC Specialists are your trusted solution for IRS compliance.

With ERC Specialists, you get:

• Faster funding. ERC Specialists has a streamlined process that can help you find out how much you qualify for and file sooner. We can help you amend your forms so you can get your ERC funding as quickly as possible.

• Audit protection. Our team will offer you protection if you get audited. We will supply all the criteria you need to respond to the IRS.
• Professional support. We’ll help you every step of the way, no matter how many questions you have. Our process is quick and painless.

There’s so much you can do with your ERC money, like rewarding loyal employees or launching a new product. Contact us today to see if you qualify.