Who Qualifies for the Employee Retention Credit?

The government is offering billions of dollars in economic stimulus through the Employee Retention Credit (ERC) program, but hundreds of millions of business owners will let most of this money go unclaimed. To be eligible for the ERC, employers must be designated “qualified employers” under Internal Revenue Section 52 or 414, depending on their business structure. Additionally, a part of an employer's business must be considered an insignificant and important part of the processes if the total revenues from that component of daily activities are not less than 10% of gross income or if the length of service performed by employees in this sector of the market is not less than 10% of the total number of working hours performed by all employees of the company. Disaster loan counselors can help businesses understand the complex and confusing ERC and Employee Retention Tax Credit (ERTC) program. The ERC encourages companies to keep employees on their payroll, and the most recent standards are nearly identical to the original IRS requirements.

Employers can use the ERC to recover qualifying income, although the definition of qualifying salary varies depending on the size of the company and the number of employees. People who have more than 100 full-time employees can only use the qualified salaries of employees who do not provide services due to the suspension or decline of business activity. Employers will only be eligible for credit for qualified wages and earned wages during a period in which operations were suspended due to an outbreak of illness or a sharp reduction in total income, and the amount could often exceed what the employee would have earned without the pandemic. Qualified income, which includes specific health plan charges, disbursed during any qualifying quarter in which the company ceased operations, qualifies for the ERC. The ERC is a refundable tax credit equivalent to half of an employer's employee income that can be used for various payroll taxes. The ERTC is a refundable credit that companies can request on qualifying salaries, including certain health insurance costs, paid to employees.

While the ERTC program has officially expired, this does not affect a company's ability to apply for it retroactively. The amount of the credit is calculated based on a percentage of “qualified wages,” including attributable qualifying health plan expenses that an eligible employer pays to employees.