To calculate and claim the Employee Retention Credit (ERC), you need to follow these steps:
1. Determine Eligibility: Ensure that your business meets the criteria to qualify for the ERC. As of my knowledge cutoff in September 2021, the eligibility requirements included:
a. Experiencing a full or partial suspension of operations due to a government order related to COVID-19, OR
b. Demonstrating a significant decline in gross receipts (a reduction of 50% or more compared to the same quarter in the previous year).
Note: The eligibility requirements may have changed, so it’s important to refer to the latest guidance from the Internal Revenue Service (IRS) for the most up-to-date information.
2. Calculate Qualified Wages: Determine the qualified wages that can be used to calculate the credit. The calculation depends on the number of full-time employees you have.
a. For businesses with an average of 500 or fewer full-time employees in 2019: All wages paid to employees during the eligible period can be considered qualified wages, regardless of whether the employees were providing services.
b. For businesses with an average of more than 500 full-time employees in 2019: Only wages paid to employees who were not providing services due to a full or partial suspension of operations or a significant decline in gross receipts can be considered qualified wages.
Qualified wages are subject to certain limitations based on the applicable quarter and the average number of full-time employees.
3. Calculate the Credit: Once you have determined the qualified wages, you can calculate the ERC. As of my knowledge cutoff, the ERC was equal to 50% of qualified wages, up to a maximum of $10,000 per employee per calendar quarter.
4. Claiming the Credit: To claim the ERC, report it on your employment tax return, typically Form 941, Employer’s Quarterly Federal Tax Return. You can reduce your federal employment tax deposits by the amount of the anticipated credit or request an advance credit by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Please note that this information is based on the ERC guidelines available up until September 2021. The rules and regulations surrounding the ERC may have changed since then. It’s crucial to consult the latest guidance from the IRS or consult with a tax professional to ensure you have the most accurate and up-to-date information for claiming the credit.
ERC Tax Financial provide ERC tax credit services for small businesses throughout the United States. Contact us to see if you qualify for the ERC tax credit grant.