The ERC tax credit calculator is a process that may confuse some employees. However, this article describes the process and gives you a step-by-step guide on calculating it accurately.   

There are tools present on the internet that can help you calculate this tax. However, it will all be confusing if you do not know how to proceed. Moreover, if you do not have the proper documentation/information, it creates an even bigger problem.   

So, this guide will help you prepare everything that must be present with you to calculate it correctly. Read on to know more about it and how to calculate it easily.  

ERC Tax Credit Calculator: What Is It, How to Calculate & More

Employee retention is a government-provided tax credit that encourages businesses to retain employees. This may be seen as a new addition to the corporate tax after the COVID-19 pandemic.   

This tax credit system came into existence in 2020 and has undergone amendment three times. The federal government established the tax to help businesses bear the cost of retaining employed staff.   

The tax credit has been amended thrice under the following laws:   

• American Rescue Plan Act (ARPA)  

• Consolidated Appropriations Act 2021  

• Infrastructure Investment and Jobs Act  

The ERC was enacted by the Infrastructure Investment and Jobs Act (IIJA), the American Rescue Plan (ARPA) Act of 2021, and the Taxpayer Certainty and Disaster Relief Act of 2020 (Relief Act.)   

The businesses eligible for this tax credit can claim it by filing the adjusted employee tax returns. This is for those businesses that experienced a decline in gross receipts or were closed due to government orders.  

In addition, the ERC tax credit calculator also has the provision of choosing the periods during which the business must stop operating, including information about a decline in gross receipts.   

This information is necessary to ascertain the total revenue received, barring any business expense – returns, costs of goods/services, or allowances. As part of your company’s tax management, if you are wondering whether you can still claim it, here’s a heads up.   

Who is Eligible?   

You are eligible if you have an amended or original employment tax return for paid qualified wages between 13th March 2020 and 31st December 2021. Moreover, most taxpayers were ineligible to claim ERC for wages paid after 30th September 2021.   

However, this was barring recovery startup businesses that paid wages after 30th June 2021 but before 1st January 2022. Employers can claim the amount from the ERC tax credit calculator by filing an applicable adjusted employment tax return.  

Such a tax credit is helpful during economic hardships for the company – of course, when they affect people on a large scale.   

The eligible employees can receive a tax credit for a percentage of the wages that the employees receive. For instance, the maximum amount that an eligible employer receives for 2020 is $5000 per employee.  

This changes for 2021 where employers can receive $7000 per quarter. This credit is paid through a refundable tax credit, which implies that employers get a credit that exceeds the tax liability.   

Criteria for ERC eligibility

The employers must meet criteria that help them claim ERC tax credit. Following are some of the requirements:   

• Experience a significant decline in gross receipts   

• Have partial or fully suspended operations due to government orders related to Covid-19   

• The order to cease operation must be from the government and not a statement, guidance, or recommendation  

• ERC claim can only be for periods the government order was in effect, and the business was suspended  

The ERC aggregation rules state that the gross receipts for the business must be combined and compared with those for the previous years. This helps get a better idea of the declined amount; if it is over 50%.

The total tax credit is determined based on the number of restaurant employees.   

How To Identify Qualifying Wages?

This is an integral part of the ERC tax credit calculator as it helps ascertain the eligibility for your business. To know the qualifying wages, you must determine the number of employees in your organization during the period you’re applying for.   

For instance, if your business was operating with 100 or fewer employees, all wages paid to the employees during the eligible period qualify. In addition, even those businesses (>100 employees) that did not provide services due to COVID-19 but were paid wages qualify.   

The compensation that qualifies include:  

• Salaries  

• Tips  

• Other forms of payment   

All wages qualify for small employers, whereas only the salaries paid to non-working employees count for large employers. The ERC tax credit calculator will explain the amount you can expect as a claim.   

ERC Tax Credit Calculator: Step-by-step Guide On Its Calculation

Now that you know if you qualify for ERC tax credit, you must also ensure the following:   

• Meet financial setback criteria   

• Less than 500 employees for the period   

• Identify qualifying wages   

• File the return timely.’  

Steps to claim ERC credit:   

Step 1: Qualify to Apply for 2021

Before applying for ERC, check that your business experienced a financial setback during the quarters in 2021 (or the period you seek credit for.) You can know if your business qualifies by checking the following:   

• Partial or complete business operation suspension due to ordinance (local, federal, or state) in the 2021 financial quarters you are applying for  

• There was a significant decline in your gross receipts due to COVID-19 in the 2021 financial quarters you’re applying for  

The decline here implies that your business saw a drop of 20% in a financial quarter in 2021 compared to the corresponding quarter in 2019.   

Step 2: Determining Employee Qualification

As mentioned above, you must not have more than 500 employees in each quarter of 2021 for which you seek ERC credit. Moreover, you must also have proof of filing form 941 (quarterly federal tax return) for each quarter. This is mandatory when seeking ERC.   

Step 3: Identify Wage Qualification

The next step while filling out the ERC tax credit calculator is identifying the qualifying wage for ERC. This includes all earnings subject to FICA and all employee health insurance plans paid by the employer.  

The applicable wages should have been received within the first three quarters of 2021.   

Step 4: Calculating Credits

The ERC applies to the first three financial quarters of 2021, where the eligible wage for each quarter is calculated at 70%   

Calculating ERC credit becomes easier when you multiply the eligible compensation by 50% for 2020 and 70% for 2021. So, for 2021, the eligible wagers per quarter will be calculated at 70%   

You can expect a maximum of $10,000 in qualified wages per employee per quarter.   

Step 5: Timely filing for 2021

You can file for ERC within three years from the due date of filing Form 941 for the 2021 financial quarter. This is done by filing 941-X, which is an amendment of form 941 or a refundable claim.   

For a better idea of the timeline, here’s when you can apply ERC:   

Please note two of the deadlines have already passed for filing:  

• Q1: 30th April, 2024   

• Q2: 31st July, 2024  

• Q3: 31st October, 2024  

You still have time! Check the due date and apply for ERC soon!   

How To Calculate ERC Credit With PPP?

If your business benefits from Paycheck Protection Program, you were earlier barred from claiming the ERC tax credit. Here’s Employee Retention Credit Vs. Paycheck Protection Program (PPP) to help clarify your doubts regarding the two benefits. However, in the late 2020s, the Consolidated Appropriations Act changed this and made such employers eligible for ERC.   

However, here’s the twist: only those employers with qualifying wages who did not have PPP funding would be eligible. Remember the following steps if you want to use both PPP and ERC. Here’s what you need to know:   

• Employees in your organization must have been 100 or less in 2020 and 500 or less in 2021.   

• You must have paid FICA wages for the employees. This includes employer-covered health insurance premiums.  

• All the qualifying wages not covered by PPP and those that meet the ERC parameters for the year qualify for the ERC tax credit and understand if they are eligible.   

That’s all you need for the ERC tax credit calculator to claim the credit effectively. If all of this seems complicated, you may even hire a professional. The role Of an ERC Specialist is to help employers calculate the credit; there’s a lot more they can help with.   

Conclusion

That was all about the steps you must follow for the ERC tax credit calculator and the important dates you must remember. The most crucial 0thing here is to ensure you do not miss out on ERC due to doubts.   

You can hire a tax professional to discuss the ordeal and get the best advice. Doing it independently may seem daunting initially, but with this guide, you will find no difficulty once you clear the basics.   

In the comments below, tell us if your business qualifies for the ERC tax credit and the estimated amount per your calculation. 

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