Employee Retention Credit Qualifications: Do I Qualify for ERC Credit?

Employee Retention benefit (ERC) is a government tax benefit designed to motivate businesses to keep their workers during the COVID-19 pandemic. The ERC credit allows qualified businesses to save money on payroll taxes. If you are unsure whether you qualify for the ERC credit, you should look into ERC eligibility and ERC requirements.

There are specific criteria that you need to meet in order to apply for the Employee Retention Credit. The ERC is offered to qualified employers, including tax-exempt organizations, who kept workers during the pandemic. The following is a guide to help you check whether you qualify for the ERC credit.

ERC Qualifications

Business Activity Suspension 

If your company activities were completely or partly suspended due to government orders linked to the pandemic, you might be eligible for the ERC credit. This ban had to last at least a fourth of the year. If you had to close your company, decrease your hours, or restrict your activities as a result of COVID-19, you might be eligible for the ERC credit.

Reduction in Gross Receipts

Another method to apply for the ERC credit is if your total revenue fell considerably in any quarter of 2020 or 2021. The drop must be at least 20% lower than in the same period in 2019. If your company's total receipts decreased, you might be eligible for the ERC refund.

Employee Headcount

To check for the ERC qualifications, you need to ensure that you had an average of 500 or fewer full-time employees in 2019. If your business started in 2020, you must have had an average of 500 or fewer full-time employees during the first quarter of 2020.

Employee Retention

You must have retained your employees to qualify for the ERC credit. If you had a reduction in employee headcount or wages during the pandemic, you might still qualify for the ERC credit if you meet the employee retention criteria.

Check ERC Eligibility

To check whether you qualify for the ERC credit, you need to consider the above qualifications and review the following steps:

Determine Your Business Activity

You need to determine your partially or fully suspended business operations majorly due to government orders related to COVID-19. You also need to check whether your business experienced a significant decline in gross receipts.

Calculate Your Employee Headcount

You need to calculate your average number of full-time employees, depending on when your business started.

Review Employee Retention

You need to review whether you retained your employees during the pandemic. If you had a reduction in employee headcount or wages, you must check whether you meet the employee retention criteria.

Check Tax Filing Status

You must check whether you have filed your tax returns for the year(s) in question. To qualify for the ERC credit, you must file your tax returns for the eligible year(s).

Consult with a Tax Professional

If you are unsure whether you qualify for the ERC credit, you should consult with a tax professional like Claim ERC. A tax professional can help you determine your eligibility and guide you through claiming the ERC credit.

If you retained your employees during the pandemic, you may qualify for the ERC credit. To check ERC eligibility and ERC qualifications, you need to consider whether your business operations are in full or partial suspension. Also, whether you had a significant decline in gross receipts and employee headcount. If you qualify for the ERC credit, you can save on your payroll taxes and receive employee retention credit.