ERC FAQ
What Is the ERC Credit?
The Employee Retention Credit is a fully refundable tax credit for eligible employers that paid qualified wages (including allocable qualified health plan expenses) to employees during the COVID-19 pandemic. The credit initiated via the CARES Act applied to qualified wages paid after March 12, 2020, and before January 1, 2021. For that period, the maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, and the credit is 50% of qualified wages for a maximum credit of $5,000 per employee.
The Consolidated Appropriations Act of 2021 and the American Rescue Plan Act (ARPA) extended this credit for wages paid on or after January 1, 2021, and before December 31, 2021. The new legislation also increased the qualified wages and credit percentage to 70% of $10,000 for each calendar quarter, for a possible credit of up to $28,000 per employee.
The tax credit offsets all withheld federal employment taxes including federal income tax withholding, Employer FICA and Medicare. Any excess credit will be refunded or advanced by the IRS.
What Are Qualified Wages?
For employers with at least 100 employees, qualified wages are compensation provided to an employee after March 12, 2020, for a time the employee is not providing services. Qualified wages include the Eligible Employer’s qualified health plan expenses that are properly allocable to the wages. For small employers with fewer than 100 employees, compensation paid even when employees were providing services are qualified wages. For 2021, small employers are those with fewer than 500 employees.
What Is an Eligible Employee?
Eligible Employers for the purposes of the Employee Retention Credit are those that carry on a trade or business during the calendar year 2020 and/or 2021, including a tax-exempt organization, that either:
-
Fully or partially suspends operation during any calendar quarter in 2020 and/or 2021 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19 or
-
Experiences a significant decline in gross receipts during the calendar quarter.
For 2020 and/or 2021, a significant decline in gross receipts means a decline of at least 50% compared to the comparable quarter in 2019. In 2021 this threshold has been reduced to a decline of at least 20%.
While the CARES Act originally barred employers that had taken a Payroll Protection Plan (PPP) loan from also taking the ERC, the Consolidated Appropriations Act changed this rule such that employers that have already taken a PPP loan may also be eligible for the ERC.
R&D FAQ
This sounds too good to be true. Is it?
No! The R&D tax credit was created by the U.S. government to give funds back to companies who spend money on technology-based innovation. Fortune 500 companies have been taking advantage of the R&D tax credit for decades, and now with recent changes, more small to medium-size businesses are claiming the credit. But even with the increase in claims, only 5% of companies that qualify for the R&D Tax credit are taking the time to do so.
What’s the process like?
It takes a fraction of the time to pursue the R&D tax credit compared to traditional R&D studies.
Do I receive money once or every year?
You receive money every year you are eligible.
Is this the same thing as the GAAP accounting for R&D?
No. The purpose of GAAP is to make sure financial reporting is consistent and transparent. The R&D tax credit rewards companies for innovation.
What’s the benefit?
Simply put, the R&D tax credit creates money that goes back into your company’s pocket to fuel further innovation and growth. Estimate your R&D credit with our quick calculator.
Typically 7-10% of qualified expenditures, the credit can be used to offset:
Income taxes if you are in a taxable position.
Alternative Minimum Tax (AMT) if you have less than $50 million in average revenue for the 3 preceding years from the tax year, and you owe AMT in the current year.
The employer portion of social security taxes up to $250,000 each fiscal year, allowing qualified small businesses to receive the benefit regardless of profitability.
Does my company need to be in a specific industry?
No. Companies in many industries qualify.
How do I know if my company does R&D?
If your company has wages or other expenses related to the development of new or improved products, you may have qualifying R&D activities.
I have a CPA, why haven’t I heard of this?
Even though the credit has been around since 1981, the credit has evolved over the years, with many companies not being able to take advantage of the tax incentive until the changes in 2015.
Many CPA’s do not specialize in the R&D tax credit. There are over five million words in the tax codes.