How To Calculate Employee Retention Credit

Flashback to December 2019, the world received reports of a dangerous new virus. The COVID-19 virus. By 2020, the virus has spread across the globe. Just three months into the new year, the US issued the first stay-at-home order to deal with the now-declared pandemic.

As you can imagine, these restrictions, while necessary, were catastrophic for businesses. With the loss of business and, consequently, income, many companies let go of their employees. Consequently, the rate of unemployment shot up.

As such, the government had to step in and do something. So, it introduced Employee Retention Credit (ERC) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

So, what is it, how do you make a claim and how do you work out how much you’re eligible for using the ERC calculator?

Employee Retention Credit (ERC)

The Employee Retention Credit, also known just ERC, is a tax credit initiated by the US government in 2020 to support businesses afflicted by the COVID-19 pandemic. This program was to support employers in retaining their staff during the lockdown. The ERC covers all eligible businesses regardless of revenue levels, size, or industry.

Now, when it began, employers could claim up to half of the salaries of qualified employees. It was then capped at $10,000 per employee. But in 2021, the credit increased to 70%, and the cap from $10,000 a year to $10,000 a quarter.

ERC Rules & Eligibility

So, what employers are eligible for ERC? A business can claim ERC if:
• It experienced a complete or partial suspension of operations that limited commerce, travel, or work meetings.
• It had a more than 10% reduction in gross receipts in 2020 or 2021.
• It qualified as a recovery startup business in quarters 3 or 4 of 2021.

How to Claim ERC

Want to claim ERC? As a business owner, there are specific steps to follow to claim ERC for previous periods or even request advance credit. These are:
1.  Collect all the required documentation, e.g., revenue loss documents, payrolls, and PPP loan papers.
2. Determine if you qualify for ERC and apply.
3. Calculate the ERC.
4.  File Form 941-X with the IRS.

How You Can Calculate ERC

Calculating ERC can seem daunting, but the process is a breeze if you use the ERC calculator. You can also calculate by yourself by following these steps:
1.  Establish your total full-time employees during the period in question.
2.  Identify qualified wages, including benefits to eligible employees and worker compensation. The qualified wages will depend on the number of full-time employees during that period.
3.  Calculate the ERC percentage. In 2020, that would be 50%. If 2021, 70%.
4.  Compute the maximum credit amount. For 2020, that would be $10,000 per employee per year. And for 2021, $10,000 per employee per quarter.
5.  Multiply the ERC percentage by the qualified wages. Then, apply the total credit amount to determine the ERC for every worker.
6.  Compute the total ERC for your company.

Use the ERC Calculator & Get the Financial Support Your Business Needs to Keep its Employees

ERC can offer your small business much financial reprieve if it is suffering the stresses caused by government restrictions and disruptions caused by the coronavirus. But to avoid missing out, you need to ensure that you are eligible for ERC and, more importantly, understand how much you can receive by making your own calculation. All the same, you could receive up to $10,000 credit per employee per quarter!