Employee Retention Credit: Startup Myths You Need to Know

Despite Covid-19 spreading like wildfire, 4.4 million new businesses opened their doors in 2020. In the same year, 77% of startup founders claimed that the epidemic would lead to their failure. In the United States, small firms employ 47.3% of the private labor force.

Before Covid, 37% of businesses founded between 2000 and 2020 failed. They ran out of money, which was the cause. The Employee Retention Credit Act was passed by the government in recognition of the significance of these small businesses and the effects of Covid-19 on the workforce (ERC).

The Employee Retention Credit Is What?

It is a refundable tax credit for new and established enterprises where Covid-19 has had an adverse financial impact. It is not a loan; rather, it is a tax credit that is not subject to repayment.

For the employee retention credit, you get extra consideration if your organization is a recovery startup. We’re going to discuss some misconceptions about ERC.

What Is a Startup Business in Recovery?

Any company that began doing business after February 15, 2022, has annual gross receipts averaging $1,000,000 or less. Employing one (1) or more people, who are not otherwise qualified for eligibility is referred to as a “recovery starting business.”

You are eligible for ERC if you match the aforementioned criteria. Startups in recovery receive a different recovery amount than typical small firms do.

For the third and fourth quarters of 2021, a recovery startup may submit a maximum credit of $50,000 each quarter. Included in qualifying salaries are sums paid for group health insurance.

A Startup Business in Recovery Can Receive It

Your new firm can conserve as much as $7,000 per eligible employee each quarter. A startup can only save up to $50,000 in total per quarter.

You may be able to recover $50,000 per quarter. It all depends on how many workers you have overall and their salaries. The application period for this credit is two quarters. You might get a $100,000 payroll tax credit in 2021 if you use it to the maximum in both Q3 and Q4.

Contact Your Part Time Accountant to apply for employee retention credit if you haven’t already done so. The deadline is approaching.

If You Have PPP Loans, You Can Apply for ERC

Prior limitations were eliminated when Congress passed the Consolidated Appropriations Act (CAA) of 2021. Before it, firms could only take part in the ERC or the Payroll Protection Program (PPP). You can apply for both through the CAA.

Only two and a half times your monthly payroll costs are taken into account for PPP loans. The loan is intended to be repaid over six months. There are still a ton of unrecovered labor expenses that you can get back by requesting ERC.

A 50% Reduction Is Not Required

The initial requirement of a 50% decline in receipts from 2019 to 2020 is no longer applicable. You can now qualify with receipts that have been reduced by 20%.

So, depending on the quarter, the qualifying percentages range from 20% to 90%. Making ensuring that the claims only cover the earnings of qualified employees is one of the other variables that affect a claim’s capacity to get ERC.

Even a Partial Shutdown Qualifies

Many business owners think they can only be eligible if they entirely stopped operating during the outbreak. If your local, state or federal government issued a partial suspension order against your company, you might be eligible.

You may be eligible for ERC relief in the following circumstances:

Partial closure
Impact on business
Equipment not accessible
Capacity restrictions
Supply chain interruption
Vendor closure
Decrease in services

Did the government trigger a partial or whole suspension of your business? You meet the eligibility requirements if the required government suspension prevented your company from carrying out all of its regularly scheduled activities. As well as materially affected business operations.

Essential Companies Cannot Be Qualified

Even crucial enterprises are impacted by the pandemic. You might be operating as a necessary business even while your suppliers are unable to provide your goods. Perhaps you need to go to a client’s job site, but shutdown orders make it impossible for you to do so.

These are situations that can make your business eligible for ERC. You can also run a firm where some areas are required to remain open while others are required to close down by law.

Reasons to Hire an ERC Professional

You have the chance to recoup thousands of dollars for employee payroll costs thanks to the employee retention credit. There have been many revisions to the law since the CARES Act came into effect. Each modification increases the scope of the collection and qualifies more companies.

You must use the appropriate forms to apply for or modify your filings. So, depending on what stage of the process your firm is in, the appropriate form will vary.

A three-year lookback window is available. You don’t want to make a mistake or omit a step that results in your return not being processed or you missing the deadline!