April 4, 2023 | Raistone

Top 10 Things Businesses Need to Know About the Employee Retention Credit

The Employee Retention Credit (ERC) is one of the most important recent tax credits available to businesses as they continue to recover from the effects of COVID-19.

Notice: As of the first quarter of the calendar year 2024, Raistone will be phasing out its Employee Retention Credit payment advance solution, as the Internal Revenue Service also winds down the program. If you have any questions, reach out to a Raistone representative.

With up to $26,000 in credits per employee, the ERC can provide a significant bottom-line boost for many companies.

While nearly 70% of companies may qualify for the ERC, there are certain guidelines and restrictions that must be met in order to qualify for this refundable credit. In this blog post, we will discuss the top 10 things you need to know about the ERC. We’ll cover eligibility criteria, available funds, payment processing times, potential third-party partner program details, and more – all designed to help you access your ERC refund. Let’s get started.

1. The Employee Retention Credit (ERC)

The Employee Retention Credit (ERC) is a refundable tax credit of up to $26,000 per employee against certain employment taxes equal to 50% of the qualified wages paid to employees. It was created as part of the CARES Act in 2020 to provide businesses with financial relief from the severe economic effects of the COVID-19 pandemic. The ERC applies to companies that remained in business and retained employees during Q1-Q4 of 2020, and Q1-Q3 of 2021.

2. Does your business qualify for the ERC?

The ERC refund is intended for businesses that experienced disruption due to government orders limiting the spread of COVID-19. Whether it was a decrease in revenue, retaining employees, or staying in business, the refund has been designed to help businesses offset those challenges. Businesses that experienced disruptions to commerce, travel, or group meetings due to government orders limiting the spread of COVID-19 may be eligible for an ERC refund. These can include reduced hours, price increases, reduction in goods or services offered, inability to travel, meeting employee count limits (averaging less than 500 full-time employees), and having paid qualified wages after March 12th, 2020. According to research conducted by the National Federation of Independent Businesses, less than approximately 36% of small business owners said they had some level of familiarity with ERC refunds. For more information about whether your business is eligible for the ERC refund, it’s recommended to review the IRS website.

3. How much money can your business receive for the ERC?

The amount of funds available for the ERC depends on several factors, such as the number of employees your business has, how long they worked during 2020 and 2021, and how much they were paid. Given its complexity, determining the exact refund amount often requires tax professionals. However, in general, companies can receive up to $26,000 per employee in credits against their employment taxes, equal to 50% of the qualified wages paid since March 12th, 2020. Smaller businesses with 100 or fewer employees can claim credits up to $5,000 per employee for wages paid between March 12th, 2020 and December 31st, 2020 and up to $7,000 per employee  per quarter in 2021. 

4. How should you apply for the ERC?

There are several online ERC calculators to help determine the eligibility of your business and estimate the amount of credit you are due. That will give you an estimate, but you will still need to apply for the ERC. You can use your in-house financial professionals or rely on your tax professionals to help you apply for the ERC using the appropriate tax form, including Adjusted Employer’s Quarterly Federal Tax Return, or Claim for Refund. 

5. How long can your business expect to wait to receive the ERC refund

Processing times vary, but the current wait time for Raistone clients is averaging six months to receive their refund from the IRS unless you opt to accelerate your refund.

6. There is still time to apply for your ERC refund

Businesses may still apply for the ERC. The time to apply for the 2020 ERC closes on April 15, 2024, and the statute of limitations for the 2021 ERC closes on April 15, 2025. However, it is recommended to apply now instead of waiting, particularly given the number of companies that are likely eligible, and keeping in mind that there is currently a wait time of approximately six months for a refund.

7. Will my business qualify for the ERC if we also received a PPP loan?

According to the IRS, “The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020, made a number of changes to the employee retention tax credits previously made available under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).” With these changes, the law “now allows employers who received Paycheck Protection Program (PPP) loans to claim the ERC for qualified wages that are not treated as payroll costs in obtaining forgiveness of the PPP loan.”

8. Your business could receive the ERC sooner with a third-party partner 

Many companies are using third-party partners to assist in filing their ERC, so this is an option to consider as well. Once the claim is filed, partnering with a third-party service provider, like Raistone, means your business could receive your ERC in as little as two weeks, compared to the six-month wait time it would take with the IRS. Think of how helpful that refund could be to your bottom line this year.

9. The IRS temporarily paused Employee Retention Credit processing

The IRS recently ordered a stop to new Employee Retention Credit processing through the end of 2023 — or longer — due to a surge of questionable claims. We rely on referrals from tax professionals who determine their clients legitimately meet the criteria for the credit, guide clients through the complex tax reporting, and help determine their clients will benefit from accelerating their refund.

Raistone relies on a tax professional’s first obligation which remains accuracy and advocacy for the client. The tax preparer’s referral fee is a portion of what is deducted from the advanced proceeds from our client and they are required to disclose that to their client.

10. What if we already have an ERC pending approval?

If your business has already applied for the ERC and is awaiting approval, you can take advantage of third-party services to access the pending funds sooner.

Accelerate access to your business’s ERC

The Employee Retention Credit (ERC) is a great way for employers to get financial relief from the effects of COVID-19. However, it’s important to understand the details of how it works, including eligibility requirements and processing times. Partnering with a third-party service provider can make the process easier and faster, so your business can get its ERC sooner. With the right partner, your business can receive its ERC refund in as little as two weeks rather than waiting months for approval. If you are considering applying for an ERC, contact Raistone to learn more about our services.  We’ll help maximize your business’s benefit from this valuable program. 

Please note: As of the first quarter of calendar year 2024, Raistone phased out its Employee Retention Credit payment advance solution, as the Internal Revenue Service also wound down the program. Small- and medium-sized businesses looking for other non-debt funding solutions are encouraged to explore how Raistone’s suite of working capital products can help their company get paid faster.

Related Topics

Insights, Employee Retention Credit

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