Frequently Asked Questions

Understanding the nuances of Employee Retention Credits can be difficult. We’re here to help, then get you the credit you deserve!

So what is an Employee Retention Credit (ERC)?

The Employee Retention Credit, or ERC, is a stimulus program that was released with the CARES Act in March 2020 at the same time as the PPP (Paycheck Protection Program). In short, it is a cash credit that was intended to incentivize businesses to retain and continue paying their employees through the COVID-19 pandemic. While virtually every small or medium business is familiar with the PPP, a surprising number of companies have not heard of the ERC. Therefore, we often tout it as the “Hidden PPP 3.0.”

Initially, companies were only allowed to choose either the PPP or the ERC, but not both. When the CARES Act was originally released in March 2020, the PPP was generally chosen over the ERC by most businesses for the following reasons:

1) The PPP was much easier to understand and compute. Businesses were fairly certain they’d be able to get a dollar-for-dollar benefit for the PPP, while the ERC only appeared to provide a benefit of 50 cents on the dollar, at most.

2) The PPP usually resulted in cash funding in April/May of 2020, while the ERC could take months to obtain.

In December 2020, the rules were changed and eligibility under the Program was expanded dramatically, allowing small business owners access to the benefits under the ERC, even if they took PPP 1 or PPP 2!

Under the ERC, Uncle Sam rebates you for wages paid to each employee you retained during times your business was being affected by COVID. The total value of the rebate is 50% on up to $10,000 in wages in 2020 – or $5,000 total per employee in 2020 – plus 70% on $10,000 in wages per quarter for the first three quarters in 2021 – or $21,000 total per employee in 2021. This adds up to a huge amount of money – $26,000 total per employee!

One more note: The PPP is governed by the Small Business Administration (SBA) and the ERC by the Internal Revenue Service (IRS). While there is overlap in similar concepts like aggregation of commonly controlled business and testing employee headcount, there are major differences between the specific application of those rules. Fear not, we are well equipped to guide your business through these nuances and help you claim the credit you are owed.

While both PPP and ERC are part of the CARES Act, there are some notable differences: the PPP was structured as a forgivable loan through your local bank via the SBA; the ERC is a payroll tax credit through the IRS – it is not a forgivable loan; it is cash for you to do whatever you choose. The PPP had a specific funding amount and PPP funds ran out; ERC funds don’t run out, you just have to claim your credit prior to the end of the 3 year lookback period. Finally, the PPP isn’t taxable; the ERC is.

Yes! Before the Consolidated Appropriations Act (CAA) was passed in December 2020, businesses could not claim ERC if they had accepted a PPP loan. With the updated CAA, businesses are eligible in 2021 even if they claimed a Paycheck Protection Program loan.

No! It’s a cash refund from the IRS for you to spend however you’d like, including dividends out to owners.

This is not a lending program – tax refunds are issued by the US Treasury. Therefore, all eligible employers will receive the funds they are qualified for so long as they file their claim within the 3 year look-back period. Generally speaking, the ERC program will peak by 2023 and run its course by the third quarter of 2024.

ERC “Version 1” went live in March of 2020 but was mostly ignored due to the focus on PPP. However in December 2020, the Government updated the law with the release of ERC “Version 2” through the Consolidated Appropriations Act. Under Version 2, employers were both retroactively and prospectively allowed to take both ERC and PPP (Round 1 and 2). Version 2 also extended the credit into Q1, Q2 and Q3 of 2021 and increased the field of eligible employers by allowing companies with up to 500 employees to take the credit, up from 100 for 2020. In short, it was a huge expansion of eligibility which opened up a significant opportunity for hundreds of thousands of businesses in the US.

A business is eligible if they meet one of two tests. Only one test is required and it’s possible to qualify under one test for one period, and another test for a different period.

The first test is a quantitative test that was developed as an objective measure of whether COVID-19 impacted a company’s ability to generate revenues comparable to pre-COVID levels. This test is referred to as the “Substantial Decline in Gross Receipts” test, or SDGR. This test looks to compare quarterly periods in 2020 and 2021 to the same quarterly period in 2019. The relevant percentage threshold is 50% in 2020 and 20% in 2021. For example, if an employer had $49,000 of gross receipts in Q2 2020 compared to $100,000 of gross receipts in Q2 2019, this 51% decline would qualify the employer under the SDGR. Similarly, an employer with $79,000 of gross receipts in Q1 2021 compared to $100,000 gross receipts in Q1 2019, would also meet the SDGR test for Q1 2021. Note that in nearly all cases, if a business qualifies under this test for a quarter, they will qualify automatically for the following quarter, provided at least 6 months of eligibility. The look-forward and look-back tests can be quite complicated and we work with our clients closely to help evaluate eligibility.

Even if a company doesn’t meet the SDGR, they can still qualify if they meet the full or partial suspension of operations test, or FPSO. The full or partial suspension test applies for the periods of time when the operations of a business are shut down due to government order, or are subject to certain restrictions / modifications while they are allowed to keep their doors open (such as reductions in operating hours and capacity limit restrictions). An example of a partial suspension is a restaurant that was forced to move to take-out or delivery only, or was forced to move to a reduced capacity limit with dine-in service due to social distancing requirements. A gym or fitness center that is required to move to appointment-only, reduced capacity, closed day-care facilities, etc. might also qualify under the partial suspension test. A doctor’s office that does more than a nominal amount of elective procedures will almost always have a partial suspension for some period of time. A lesser known partial suspension can occur when a business is affected due to supplier related issues. For example, a business that cannot obtain materials or supplies from vendors that were shut down by COVID-19, can also translate into the first business being treated as partially suspended. Finally, there are complex rules that look at businesses with multiple locations, segments, or divisions and can cause the entire business to be treated as partially suspended, even if only due to one of locations, segments, or divisions.

EZ-ERC has experience with all of these cases and has helped hundreds of Clients through the complicated tax code to maximize their ERC – typically 40% more than most CPAs, bookkeepers and payroll providers!

Eligible employers are small businesses in the US that carry on a trade or business during the calendar year for 2020 and / or 2021 and have fewer than 500 W-2 employees (special note: you can have more than 500 W-2 + 1099 employees and still qualify, you just can’t have more than 500 W-2 employees). This includes tax-exempt organizations that experienced either of the following:

  • Full or partial suspension to business operations during any calendar quarter in 2020 and / or 2021. These are attributed to governmental orders that limit commerce, travel or other group meetings due to the COVID-19 pandemic.
  • Experienced a significant decline in gross receipts (SDGR) during a calendar quarter for 2020 or 2021. For 2020 quarters, SDGR is defined as a decline of at least 50% compared to the same quarter in 2019. For 2021, this metric has been reduced to a decline of at least 20% for the comparable quarter.

Qualified wages are compensation provided to employees during an eligible period after March 12, 2020, inclusive of health plan expenses.

Yes, 100% of your ERC is taxable in the year it’s received, subject to your business having taxable income. The slightly wonky answer is: ERC is a reduction of wage expense in the relevant year. If, for example, you deducted $15,000 in wages and you received $5,000 in ERC, you would have $10,000 in deductible wages.

EZ-ERC will provide you full ERC services, including filing and claiming your Employee Retention Credit from the IRS. For those that qualify and wish to receive cash fast, we can even arrange for an advance payment of up to 70% of your total credit within as little as 3 – 4 weeks!

Through our process we will collect qualitative and quantitative data to evaluate your eligibility and then perform detailed and complex computations to determine your ERC. Through sophisticated analysis and reporting, we are able to maximize the ERC for clients by carefully selecting how certain wages are treated for PPP versus ERC purposes at the employee level as well as understanding the nuances of a complex tax code.

For all of our clients, we deliver a +10-page report documenting your eligibility as well as the results from our proprietary EZ-ERC calculator that supports the numbers used to claim your credit. We then prepare any amended payroll tax returns, Form 941-X(s), and file your ERC claim with the IRS. When we do that, we request a refund check for you.

And when that work is done, we commit to helping you in the future in case there are questions about how you arrived at your IRS filing. We do it all for you!

The challenge with CPAs is that the ERC credit is taken on your payroll returns and not through your business income tax returns, which is what most CPA’s handle. So the vast majority of the time, they are not very well versed in the +150 pages of the ERC tax code, which means you may get less than you should! And on the other side, payroll providers like ADP certainly aren’t tax experts – choosing them to do your ERC is like choosing a dentist to fix your foot!

In 2020, we saw a gap in the market that existed between income tax CPAs and payroll providers, where neither were well equipped to handle ERC work. Because most CPAs handling income tax are not well versed in payroll taxes, and frankly are already overextended with income tax preparation, they simply haven’t had the time and resources to develop the sub-specialty in Employee Retention Credits. If you are just hearing of the ERC now from us, this is likely further evidence of that fact.

On the other hand, payroll providers (ADP, Paychex, QuickBooks, Gusto, etc.) will submit an ERC claim for you, but will not provide any assistance in determining eligibility and qualified wages. In most cases, they are requiring employers to sign waivers of liability so that the payroll provider cannot be held liable for errors, omissions, or overstatement of ERC claims. Choosing this option may create an immense amount of risk of penalties and other punitive actions from the IRS.

Choosing the experts at EZ-ERC is an EZ decision!

In March of 2021, the IRS finally came out with more than 100 pages of detailed guidance on the application of both ERC Version 1 in 2020 and ERC Version 2. Since it has been released our team of experts have read this over and over and over again, along with the bills that contain the original law. The IRS guidance is extremely detailed, very thorough, and immensely complex.

In addition to the IRS guidance that came out in March, yet another stimulus bill, the American Rescue Plan Act (ARPA) was released the same month that extended the ERC further into 2021. Internally, we refer to this as ERC Version 3. ERC Version 3 largely employs the same rules as ERC Version 2, however it also includes a variation of the ERC called the Recovery Startup Credit (RSC). The RSC can be claimed by any new business started after February 15, 2020, regardless of whether COVID-19 affected the operation or financial results of the “startup business.” The RSC is capped at $50K per quarter (using the same 70% x $10K to reach it), and is only available for certain quarters of 2021.

Is your head spinning yet? Don’t worry, that’s why we’re here – to get you the maximum amount you are due from the Employee Retention Credit program. Just contact us and get started today!

Yes, absolutely. We do a lot of “second look” work where Clients have us review their original ERC submission and if we find more credit than originally claimed, we can re-amend your Form(s) 941-X to get you any additional amounts. Even if you’ve gotten your ERC check already and cashed it, there is still an opportunity to re-amend and re-file your claim to get the max credit you deserve.

Currently, the IRS is not providing any estimates related to the timing of Employee Retention Credit receipt. However, they have indicated that there are over 1.8 million paper payroll tax returns in the queue with the IRS. Our best guess is that you’ll be waiting 8-12 months from the filing date of your claim.

In order to remove the uncertainty to our qualified clients on the timing of receipt of their credit, we offer an advance payment option that enables the receipt of funds in as little as two weeks following the submission of our package to the IRS.

Just answer the few questions on the form on the homepage of this website. Then we’ll give you a quick call to confirm your info and provide you an estimate of your expected IRS credit / refund within 5 minutes!

It’s really that simple to get started.

After our call, we’ll send you an engagement letter to sign to get started. After it’s returned, we’ll gather the data needed and that’s when we really get to work – it generally takes a week to complete our work for your IRS submission. We then file a claim on your behalf with the IRS and send you back a complete Client Package with all of the workpapers and information for your recordkeeping.

After that, you wait for your check to come in the mail from the US Treasury! If you choose the advance payment option, you will receive your cash in as little as 3 – 4 weeks. We can’t wait to get started with you – just go to our homepage and fill out the simple questions on the form. Then we’ll call you ASAP!

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