ERC Calculator: How To Determine Your Tax Credit Amount?

Calculating the Employee Retention Credit (ERC) can often seem like a puzzle, with its intricate rules and regulations. Essentially, you determine this tax credit by assessing the percentage of qualifying wages paid to employees during periods of business suspension or significant decline in gross receipts.

The computation hinges on various factors, such as the company's size, the number of employees, and the timeframe. The Employee Retention Credit calculator simplifies this process, allowing you to quickly and efficiently estimate your potential tax credit, ensuring you take advantage of all opportunities to recoup costs and boost your bottom line.

Understanding The Mechanics of Employee Retention Credit (ERC)

The Employee Retention Credit (ERC) is a refundable tax credit under the CARES Act, targeted explicitly at employers whose operations were fully or partially suspended due to government orders related to COVID-19 or who experienced significant declines in gross receipts. The goal is to encourage eligible businesses to keep employees on their payroll during these challenging times.

The mechanics of the ERC are structured around two main criteria:

Full or Partial Suspension of Operations:

If your business was required to shut down or limit operations due to a governmental order related to COVID-19, you are eligible to claim the ERC.

Significant Decline in Gross Receipts:

A business is eligible if it has experienced a significant decrease in gross receipts. This is defined as a calendar quarter in 2020 or 2021 in which gross receipts are less than 50% of gross receipts in the corresponding calendar quarter in 2019.

The credit value is calculated as a percentage of qualified wages paid to employees during this period, and this percentage differs based on the year: 50% for 2020 and 70% for 2021. Qualified wages also vary based on the employer's size and whether the employer was operational during the specified period. The ERC calculator is designed to consider all these factors and accurately estimate your tax credits.

Who Are Eligible For The Refundable Payroll Tax Credit?

Eligibility for Businesses of Varying Sizes:

While all businesses are potentially eligible for the ERC credit, the specifics of qualified wages depend on how many employees a business has. Companies with fewer than 500 employees can count all wages paid, whether the business was open or closed. Businesses with 500 or more employees can only count wages paid to employees for time the employees didn't provide services.

Eligibility for Non-Profit Organizations:

Non-profit organizations, including tax-exempt organizations, also qualify for ERC eligibility. Like businesses, the criteria for qualified wages depends on the number of eligible employees.

Eligibility for Public Universities, Colleges, and Institutions:

Public colleges, universities, and medical or hospital care institutions are eligible for the ERC. As with businesses and non-profits, the count of full-time employees determines what counts as qualified wages.

Eligibility for Governmental Entities:

Certain federal, state, or local government entities qualify for the ERC, specifically those that provide services similar to small businesses, such as public universities and hospitals.

Eligibility based on Recovery Startup Businesses:

Under the American Rescue Plan Act of 2021, a new 'Recovery Startup Businesses' category was added. These companies began operations on or after February 15, 2020, and have yearly gross receipts of up to $1 million. These businesses are eligible for the ERC.

How To Calculate ERC Tax Credit Claims Using Employee Retention Credit Calculator?

1. Access the Calculator: Navigate to the ERC Calculator homepage. Ensure you have all your financial and employee data gathered for an efficient and accurate calculation.
2. Enter Business Information: Enter your business details, such as employer size, business start date, and operational status, during the specified periods.
3. Define Impact Periods: Specify the quarters in 2020 or 2021 during which your business experienced either full/partial suspension or a significant decline in gross receipts.
4. Input Wage and Health Plan Details: Fill in the details about qualified wages paid to employees during the impact periods and any health plan expenses, if applicable.
5. Enter Advance Payments and Previous ERC Received: If you have received any advance payments from the IRS or previous ERC, enter these amounts as well.
6. Review and Submit: Review all the entered information carefully. Once you are sure it is accurate, click the 'Calculate' button.
7. Obtain Results: The calculator will then generate the estimated tax credit amount your business can claim based on the information provided.

Remember, the calculator is a tool to provide an estimation and should not replace professional tax advice. Always consult with a tax professional when filing your ERC claims.

ERC Application Deadline and Important Dates

The application deadline for the Employee Retention Credit (ERC) is determined by the date you file your federal employment tax return for the specific quarter for which you claim the credit. Typically, this deadline ends the month following the quarter's close. For instance, for credits claimed for Q1 (January, February, March), the deadline generally falls at the end of April.

However, it's essential to highlight that the IRS has extended specific deadlines due to the impacts of the COVID-19 pandemic. For businesses unable to meet the standard deadline, the IRS has allowed employers to adjust their employment tax deposits and payments to account for the ERC refundable credit.

The ERC is available for eligible employers who paid qualifying wages after March 12, 2020, and before January 1, 2022. The enhanced benefits introduced in 2021 — such as the increased credit rate and the raised limit on per-employee creditable wages — are applicable for wages paid after December 31, 2020, and before January 1, 2022.

It's crucial to stay up-to-date with the IRS's announcements and guidelines to ensure you get all benefits due to missed deadlines. Furthermore, an eligible employer should seek assistance from tax professionals to provide accurate and timely filings. Only complete applications or correct filings may result in penalties or missed opportunities for tax credits.

How Long Will It Take To Receive The ERC Tax Credit?

The duration it takes to receive the Employee Retention Credit can vary significantly and largely depends on several factors. The IRS processing times, which can change depending on the time of the year and their current workload, play a crucial role in determining how quickly you receive your tax credit.

Moreover, the complexity of your claim may factor into the timeframe. The turnaround time may be quicker for straightforward cases, where all necessary information is provided correctly, and there are no discrepancies. On the other hand, if there are errors or complications in your claim, it may necessitate additional time for review and processing.

Generally, it's reasonable to expect the process to take several weeks to a few months. However, it's important to note that there could be exceptions and delays in certain circumstances. It's always advisable to file your claim as early as possible and to ensure the accuracy of all information provided to minimize any potential delays.

Do you need help figuring out how to claim ERC for your business? Visit the ERTC Express website and learn how it can help you!