How To Determine Employee Retention Credit ERC Eligibility?

How To Determine Employee Retention Credit ERC Eligibility?
How To Determine Employee Retention Credit ERC Eligibility?

Were you in business during the Coronavirus pandemic? Was your business impacted by restrictions put in place by the government? If so, you may be entitled to receive an Employee Retention Credit payment, also referred to as an Employee Retention Tax Credit.

If you are unsure about your ERC eligibility, it is best to check in full before applying. If you receive the payment and it is later found that you were not eligible, you will have to pay back the payment received. There may also be penalties and interest charged as well.

What is the Eligibility Criteria?

The first part of the criteria is that you must have been in business and paid qualifying wages between March 12, 2020, and January 1, 2022. The wages paid could be to all or only some of your employees during that period. The Employee Retention Credit will be paid directly to the business and not to the employee.

The broad remaining criteria are that your business meets one of the following three statements:

  • You had to shut your business under the government order because of the pandemic in either 2020 or the first three quarters of 2021.
  • Your business suffered from a decline in receipts due to the pandemic during the same financial period.
  • Your business was a qualified recovery start-up during the final two quarters of 2021.

The amount of the credit you will receive and full eligibility will be determined on your federal employment tax return for the financial periods mentioned above.

Things to be Aware of

It is important to note that there are exclusion criteria, including an inability to claim if your business already reported payroll costs under the Paycheck Protection Program loan forgiveness. It is important that you fully read all of the criteria before submitting your federal tax return.

It is also important to be aware that there are several companies attempting to scam businesses out of their ERC. As the ERC eligibility criteria are becoming more well-known, scammers are becoming more convincing.

Some scammers are even using what look to be official government letters or emails to entice businesses to make a claim via them and then take the payment for themselves. It is not difficult to make a claim yourself on your tax return, and assistance is available should you need it.

Companies are becoming more aggressive in their advertising of ERC support as the number of businesses still to claim decreases. You may receive unsolicited telephone calls, emails, or other contact urging you to submit a claim via a third party to receive your payment.

Companies may offer to complete your tax return for you in exchange for upfront fees or a percentage of the ERC your business receives following the application. Again this is unnecessary as you can complete the form yourself and keep 100% of the payment you are eligible for.

If you need further help and support with the ERC, it is best to employ the services of a tax professional for businesses. If you have a financial advisor in place for your business currently, then they should be able to advise you.