Telecommuting. Remote work. Work-from-home. And now, the return to the office. These are all highly debated topics in the realm of human resources and business operations, dominating the news since the emergence of the COVID crisis.
Certain CEOs are making waves by insisting that their employees return to the office, while others are positioning themselves as disruptors by embracing new perspectives that allow most employees to work remotely or from their preferred locations, excluding only those who are absolutely required to be physically present.
How businesses have dealt with this spectrum of options since March 2020 has a notable impact on their approach to applying for the Employee Retention Credit (ERC) under the CARES Act—a federal law aimed at helping small businesses tackle the sometimes existential threat posed by the pandemic.
Here's what you need to know:
What is the ERC credit?
The ERC program was established as part of the federal government's CARES Act, which was enacted in response to the business and financial challenges triggered by the COVID-19 pandemic. This program allows eligible businesses that remained operational and retained their workforce to claim a tax credit of up to $26,000 per W-2 employee.
Who is eligible for the ERC credit?
There are three primary eligibility criteria:
Businesses that experienced a significant decline in gross receipts in 2020, 2021, and/or 2022 compared to the corresponding quarter in 2019 are eligible based on revenue reduction.
Businesses impacted by supply chain disruptions of more than 10 percent caused by government orders are eligible.
Companies that faced partial shutdown impacts due to factors like travel restrictions, capacity reduction, or reduced working hours may be eligible.
Can larger companies qualify for the ERC credit?
The ERC tax credit is primarily designed to support small businesses that retained their workforce during the most challenging phases of the COVID crisis. Small employers are defined as those with fewer than 100 employees in 2020 and fewer than 500 employees in 2021. Generally, larger employers are not eligible.
What if my employees worked remotely during the pandemic?
If you experienced a decline in gross receipts of 50% in 2020 or 20% in 2021 compared to 2019, the location where your employees worked during the pandemic is irrelevant to your eligibility for the ERC credit. If your business successfully transitioned to remote work and maintained comparable revenue levels, you are unlikely to qualify.
What if my business was impacted despite remote work?
If you allowed your employees to work remotely and your business suffered other adverse effects due to COVID-related shutdowns, such as canceled tradeshows, reduced capacity, or limitations on services, you may still be eligible for the ERC. It's advisable to consult with an ERC specialist to understand how the rules apply to your specific situation.
What about part-time employees?
The ERC credit aims to incentivize retaining personnel, including part-time workers. Wages paid to part-time W-2 employees will be considered in the calculation and may contribute to a higher credit amount.
Can I handle the ERC application on my own?
Many clients have shared that their in-house tax experts or contracted CPA firms recommend working with ERC Refund instead of attempting to handle the ERC application process internally. The intricate details and nuances of the ERC program can be complex. There's no upfront fee for our ERC filing service and CPA guaranteed. While the ERC application process is well-documented and available online, the evolving nature of the CARES Act and its specific requirements can be challenging to navigate without relevant experience.