To be eligible for the ERC, an employer must have experienced a significant decline in gross receipts or been subject to a government shutdown order. In addition, the employer must have maintained its workforce at 80% of its pre-downturn level. If an employer meets these criteria, it may be able to claim a credit against its payroll taxes equal to 50% of the wages paid to employees during the period of economic hardship.

The Employee Retention Tax Credit (ERC), which allows eligible employers to earn a refundable tax credit against certain federal employment taxes, was an important part of the original CARES Act to provide pandemic relief. The ERC became even more appealing once it was opened to businesses that had also received a Paycheck Protection Program (PPP) loan.The ERC is available to companies of any size that had their business fully or partially suspended or suffered a drop of 20% or more in gross quarterly revenues in 2021, compared to the same quarter in 2019.Despite these complexities and uncertainties, an ERC may offer significant opportunities for tax savings, and one that is worth investigating more fully.

The statute of limitations for filing the amended returns is generally three years from the date of filing the form. Therefore, eligible businesses that still need to claim their ERC could do so through 2024, depending on when they initially filed or paid the business taxes.

Claiming the ERC without expert help is a risky proposition for your business — even payroll tax professionals and CPAs find this special tax credit difficult to navigate. There is a likelihood that your company’s finance department will miscalculate your credit amount. If they overclaim your refund, your company will be subject to tax penalties and legal scrutiny. If they underclaim your refund, you leave money on the table that you were legally entitled to.

In general, most C Corp or S Corp-owned businesses cannot claim the employee retention credit. Qualification is mainly based on owner share, how the shareholders relate to one another, and other essential factors that determine eligibility.
LLC owners cannot claim the employee retention credit because owner wages come from the business profits, not from payroll. Some owner wages do qualify for the ERC. For example, those with less than 50% ownership or multiple owners with less than 50% ownership may claim the credit. So long as no two or more owners are immediate relatives and have combined ownership over 50%.

Employers that qualify for the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s employee retention credit may treat health plan expenses paid to furloughed employees as qualified wages for purposes of the retention credit, according to a guidance document updated May 7 by the IRS. Qualified employers that do not pay wages to laid off or furloughed employees but continue health coverage for those employees may treat the associated health plan expenses as qualified wages, the IRS said. Any such health plan expenses must be paid or incurred after March 12, 2020, and before January 1, 2021, and they are subject to a maximum of $10,000 per employee for all calendar quarters for all qualified wages.