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At some point in the past two years, you may have heard the words “Employee Retention Credit”. It may have been in the same breath as “PPP”, “Federal loans” or “you don’t qualify”. We’re here to tell you that you may have incorrect or outdated information and there may be some federal relief available to you!
What is the Employee Retention Credit?
The Employee Retention Credit (ERC) is a tax credit passed under the CARES Act available to small businesses that have been impacted by the COVID pandemic financially but have retained full time employees. Originally, there were far more restrictions which is why you might believe you don’t qualify. In 2021, however, the ERC eligibility was expanded to include businesses that previously received PPP loans and for businesses with up to 500 full-time employees (previously 100).
What’s the difference between ERC and PPP?
The Paycheck Protection Program (PPP) far outshined ERC in 2020. It was easier to qualify, quicker to receive funds and had less complex requirements. On the other hand, the PPP is a loan that, unless explicitly forgiven, needs to be repaid and the funds came with restrictions on how they could be spent. The ERC is a payroll tax credit through the IRS so you are free to use the funds as you wish with no expectation of repayment.
How do I know if I qualify for ERC?
There are two possible tests to determine eligibility for the ERC. One test is referred to as the “Substantial Decline in Gross Receipts” (SDGR). This test compares quarterly financials from 2020 and 2021 to the same quarter in 2019 to determine decline in revenue. The second test of eligibility is the Full or Partial Suspension of Operations (FPSO). This would include businesses affected by full shut down or restrictions by government order.
What’s my next step?
Lunchbox has teamed up with EZ-ERC, a collective of CPA’s, corporate lawyers and payroll experts that have combined their expertise to maximize the ERC for their clients. EZ-ERC has helped their clients receive 40 % higher credits than their CPA or payroll provider had previously found, up to $26,000 per full-time employee. You can begin by filling out this form to get started!
Alternatively, if you prefer to file on your own, fill out Form 7200 to submit to the IRS. More information on the ERC through the IRS is available here.
