The Employee Retention Credit (ERC) is a government program to provide financial relief to businesses impacted by the COVID-19 pandemic. It offers eligible employers a refundable tax credit for employee wages during specific periods. While the ERC can be a valuable resource, startups, and small businesses must understand the eligibility criteria to take full advantage of this credit. In this blog post, we’ll explore the key aspects of ERC eligibility for startups and small businesses.
Size of the Business
Startups and small businesses, defined by their number of employees, can be eligible for the ERC. The specific threshold depends on the size standards set by the Small Business Administration (SBA). Generally, businesses with 500 or fewer employees are considered small businesses, while the ERC allows for an expanded definition of small businesses, encompassing those with up to 500 full-time equivalent employees.
Impact on Gross Receipts
To qualify for the ERC, businesses must demonstrate a significant decline in gross receipts. This means comparing their current quarter’s gross receipts to the same quarter in the previous year. If the gross receipts decline by 20% or more, the business may be eligible for the ERC. This criterion is especially important for startups that may have experienced fluctuations in revenue during their early stages.
Partial or Full Suspension of Operations
Another eligibility requirement for the ERC is the partial or total suspension of business operations due to COVID-19. This includes cases where the government mandated closures or restrictions that affected the business’s ability to operate normally. Startups and small businesses that had to limit or halt their operations due to the pandemic can qualify for the credit.
Qualified Wages
Qualified wages play a crucial role in determining ERC eligibility. These wages include compensation paid to employees during the relevant periods. Startups and small businesses must ensure that the wages they pay align with the requirements for the credit. Qualified wages can differ based on the size of the company and the specific circumstances surrounding the partial or total suspension of operations.
Record-Keeping and Documentation
To claim the ERC, startups and small businesses must maintain accurate records and documentation to support their eligibility. This includes payroll records, financial statements, and documentation of the impact on gross receipts and business operations. Maintaining proper documentation ensures compliance with IRS requirements and facilitates a smooth filing process.
If you’re a startup or small business owner seeking assistance with ERC eligibility and claiming the maximum refund, GetMyBizRefund can help. Our experienced tax professionals specialize in ERC filings and can guide you through the process, ensuring you meet all eligibility criteria and maximize your refund. Contact us today to schedule a consultation and learn more about how we can assist you in navigating the ERC program.