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ERC Tax Credits Explained: A Comprehensive Guide for Business Owners

The Employee Retention Credit (ERC) is a tax credit created by the United States government to provide financial assistance to businesses during the COVID-19 pandemic. This tax credit is designed to encourage businesses to keep their employees on the payroll and to help them recover from the economic impacts of the pandemic.


In this blog from ModPay Solutions, we’ll explore the ERC tax credit and how it can benefit businesses in the U.S.


ERC Tax Credits Explained: A Comprehensive Guide for Business Owners

In this blog from ModPay Solutions, we’ll explore the ERC tax credit and how it can benefit businesses in the U.S.


Table of Contents:

  1. What is the ERC Tax Credit Exactly?

  2. How Can Businesses Qualify?

  3. The ERC Tax Credit: Benefits for Businesses

  4. Helps Businesses Retain Employees

  5. Provides Financial Relief

  6. Supports Business Growth

  7. Reduces Financial Stress

  8. Provides Flexibility

  9. How You Can Claim the ERC Tax Credit

  10. ERC Tax Credits FAQs

  11. What is the ERC Tax Credit?

  12. Who is Eligible for the ERC Tax Credit?

  13. How Much is the ERC Tax Credit Worth?

  14. Can an Employer Claim the ERC Tax Credit for Employees Who Are Working Remotely?

  15. Can an Employer Claim both the PPP Loan and the ERC Tax Credit?

  16. How Can an Employer Claim the ERC Tax Credit?

  17. When Does the ERC Tax Credit Expire?

  18. Conclusion

What is the ERC Tax Credit Exactly?


The ERC Tax Credit is a refundable tax credit available to businesses negatively impacted by the COVID-19 pandemic. The credit equals 70% of up to $10,000 in wages per employee per quarter for the first two quarters of 2021 and up to 70% of up to $10,000 in wages per quarter for the second two quarters of 2021.


This means businesses can receive up to $28,000 per employee in tax credits for the entire year.


How Can Businesses Qualify?


To qualify for the ERC Tax Credit, a business must meet one of two criteria:


First, the business must have been fully or partially suspended due to a government order related to COVID-19.


Second, the business must have experienced a significant decline in gross receipts, defined as a 20% or more decrease compared to the same quarter in the previous year.


The ERC Tax Credit: Benefits for Businesses


The ERC Tax Credit provides several benefits for businesses that are struggling as a result of the pandemic.


Some of the key benefits of this tax credit include the following:


Helps Businesses Retain Employees


The ERC Tax Credit is designed to incentivize businesses to retain their employees, which is crucial for struggling businesses due to the pandemic. By providing a financial incentive to keep employees on the payroll, companies can avoid layoffs and reduce the financial strain on the business and its employees.


Provides Financial Relief


The pandemic has had a significant impact on the financial stability of businesses across the country. The ERC Tax Credit provides financial relief to businesses by reducing their tax liability, which can help them stay afloat during these challenging times.


Supports Business Growth


The ERC Tax Credit can also support business growth by providing additional financial resources to invest in the business. This can help businesses expand their operations, hire new employees, and invest in new technologies or equipment.


Reduces Financial Stress


The pandemic has created a great deal of uncertainty and stress for businesses. The ERC Tax Credit can help reduce financial stress by providing businesses with additional resources to weather the storm and stay afloat during challenging times.


Provides Flexibility


The ERC Tax Credit provides businesses with flexibility in how they use the funds. This means that businesses can use the tax credit to cover a variety of expenses, including payroll, rent, utilities, and other business expenses.


How You Can Claim the ERC Tax Credit


To claim the ERC Tax Credit, businesses must file Form 941, Employer's Quarterly Federal Tax Return, with the IRS. The tax credit is claimed on Line 11c of this form. Businesses can also retroactively claim the ERC Tax Credit for the 2020 tax year.


To do this, businesses must file an amended Form 941-X with the IRS.


ERC Tax Credits FAQs


ERC is a refundable tax credit introduced to help businesses cope with the economic fallout of the COVID-19 pandemic. This tax credit has undergone some significant changes, and many business owners have questions about it.


Our ModPay Solutions team has compiled a comprehensive ERC Tax Credits FAQs guide to clear up any confusion. Let’s dive in!


What is the ERC Tax Credit?


The Employee Retention Credit (ERC) is a refundable tax credit provided by the IRS to eligible employers who continue to pay their employees during the COVID-19 pandemic.


Who is Eligible for the ERC Tax Credit?


Employers who were fully or partially suspended due to government orders related to COVID-19, or whose gross receipts decreased by more than 20% compared to the same quarter in the previous year, may be eligible for the ERC tax credit.


How Much is the ERC Tax Credit Worth?


The ERC tax credit is worth up to 70% of qualified wages paid to each employee, up to a maximum credit of $7,000 per employee per quarter in 2021. For 2020, the maximum credit was $5,000 per employee per year.


Can an Employer Claim the ERC Tax Credit for Employees Who Are Working Remotely?


Yes, an employer can claim the ERC tax credit for employees who are working remotely as long as they are still paying those employees.


Can an Employer Claim both the PPP Loan and the ERC Tax Credit?


Yes, an employer can claim both the PPP loan and the ERC tax credit, but not for the same wages. Employers cannot use the same wages for the PPP loan forgiveness and the ERC tax credit.


How Can an Employer Claim the ERC Tax Credit?


Employers can claim the ERC tax credit by filing Form 941, Employer's Quarterly Federal Tax Return, and applying for the credit against their payroll taxes. Alternatively, employers can request an advance payment of the credit by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.


When Does the ERC Tax Credit Expire?


The ERC tax credit was initially set to expire on December 31, 2020, but it has since been extended several times. The most recent extension is through December 31, 2021.


Conclusion


The ERC Tax Credit is a valuable resource for businesses struggling due to the COVID-19 pandemic. This tax credit provides financial relief, helps businesses retain employees, and supports business growth. If the pandemic has negatively impacted your business, exploring your options for claiming the ERC Tax Credit and other forms of financial assistance is essential.


By taking advantage of these resources, you can help your business survive and thrive during these challenging times.


Would you like to know more?


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