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Which Employees Are Eligible for the ERC?

Updated: Jul 25, 2023

Businesses whose operations were impacted by COVID-19 and government regulations due to COVID-19 are eligible for ERC. To calculate ERC, employers can include wages paid to full-time or part-time W2 employees. The deadline to apply for the Employee Retention Credit for the 2020 tax year is April 15, 2024, while the deadline for those applying for the 2021 tax year is April 15, 2025.

businesses eligible for employee retention tax credit

Because this process can be delayed by the IRS, businesses should apply as soon as possible. It is best to hire ERC consultants to help expedite the process, expert understanding of the associated rules and regulations and can guide you from start to finish, getting you in line faster with the IRS.

What Does ERC stand for?

ERC stands for Employee Retention Credit, a credit established under the CARES Act to encourage businesses to keep staff on their payroll during COVID-19 restrictions in 2020. This refundable tax credit helps businesses with the cost of keeping staff employed during times when their business operations or finances were impacted by the COVID-19 pandemic.

Employers who file for a tax credit refund through an ERC application could receive up to $21,000 per employee with a qualified wage. If you believe your business qualifies for the ERC tax credit, you can calculate your ERC tax refund to see how much you may receive. The ERC applications have a deadline, and it is best to apply as early as possible to get in line with the IRS before you experience too many delays or setbacks.

Employee Retention Tax Credit Reinstatement Act

The Employee Retention Tax Credit Reinstatement Act was a bill introduced to reinstate the ERC tax credit through 2021. The bill was introduced on December 7, 2021 to provide businesses with additional relief for closure due to COVID-19. It would apply to calendar quarters beginning after September 30, 2021. However, this bill was not passed to extend the ERTC to include additional calendar quarters.

While businesses cannot apply for the Employee Retention Tax Credit for 2022, they still have until 2024 to review their payroll from the 2020 pandemic and apply for a credit by filing an updated tax return. In some instances, businesses have until 2025 to apply. Businesses who have until 2025 would be filing an application for their 2021 tax year. 2021 has separate requirements for ERC eligibility than the 2020 tax year.

ERC Qualified Wages

Qualified wages are wages determined by the IRS to be eligible for the ERC tax credit. Not all wages qualify for the ERC. Wages must be paid by an eligible employer that averaged 100 employees or fewer during 2019.

Between March 12, 2020 and January 1, 2021, this employer is eligible to apply for an ERC tax credit for wages paid while their operations were fully or partially suspended due to COVID-19 government restrictions, or if they saw a significant decline in gross receipts during qualifying calendar quarters. If you are unsure if your business meets the qualified wages for ERC, it is best to consult with a financial expert with experience handling ERC tax credit claims.

Understanding the Aggregation Rule for ERC

When employers are aggregated, or treated as a single employer, aggregation rules apply for the ERC tax credit. Employers may be required to aggregate if they are part of a parent-subsidiary controlled group, a brother-sister controlled group, or a combined group of corporations.

For aggregated employers to qualify for an ERC tax credit, they must meet the IRS qualifications for ERC based on the combined total of employees across all aggregated companies. Examples of brother-sister subsidiaries are a clothing manufacturer with two brands, or an owner of two different restaurants. Both types may be required to aggregate. If that happens, then to qualify for ERC, they must use the combined qualifying wages from both clothing brands or both restaurants. Hiring Five Star ERC Experts has submitted many aggregated claims and can help walk you through this process.

Employee Retention Credit Deadline

The employee retention credit deadline is April 15, 2024 to amend the 2020 tax year. For the 2021 tax year, the deadline is April 15, 2025. However, you should not wait to apply for the ERC tax credit, especially considering the IRS has already notified applicants of delays.

The IRS has reported a backlog in reviewing applications, so the sooner you apply, the sooner you can get approved. For this reason, hiring Five Star ERC Experts can help put you in line with the IRS faster than any other ERC firm.

Employee Retention Credit Consulting

An ERC consulting firm can get you in line with the IRS faster to get your application approved. They will guide you through every step of the process, ensuring that you are filing your application correctly so you can reduce the chances of your application getting denied or delayed. Getting approved gives you up to $21,000 per employee, so it’s best to be on the safe side and hire an experienced ERC consultant for your line of business.

The team at Five Star ERC Experts will work closely with you every step of the way. With over 22 years of tax experience, we have helped thousands resolve their IRS tax problems. You can feel confident with an A+ rating from the BBB along with our goal of always putting the interest of our clients first.

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