By Charlie Green 
Employee Retention Credits offer a significant financial opportunity for companies of all sizes, but eligibility rules can be complex. Having a clear ERC eligibility checklist helps business owners determine whether they qualify and ensures no detail is overlooked. This guide will walk you through the key factors every small and large business should review before claiming Employee Retention Credits.
Understanding Employee Retention Credits
Employee Retention Credits are refundable tax credits provided by the federal government to encourage employers to keep staff on payroll during economically challenging times. Unlike loans, Employee Retention Credits do not need to be repaid. Businesses can still claim these credits retroactively if they meet the qualification criteria for past eligible periods.
Step 1: Check Operational Impact
The first step in your ERC eligibility checklist is to assess whether your business experienced disruptions that meet IRS guidelines.
Full or Partial Suspension
If your business operations were fully or partially suspended due to a government order, you may qualify for Employee Retention Credits. This includes restrictions on capacity, travel bans, or limitations on group gatherings that affected your operations.
Supply Chain Disruption
Businesses indirectly affected because their suppliers or vendors experienced shutdowns may also qualify for Employee Retention Credits, provided the disruption significantly impacted operations.
Step 2: Review Revenue Decline
Another major qualifying factor for Employee Retention Credits is a drop in gross receipts compared to 2019.
- For 2020, a decline of 50% or more in any eligible quarter may qualify you.
- For 2021, a decline of 20% or more in any eligible quarter may qualify you.
Step 3: Identify Recovery Startup Status
Businesses that began operations after February 15, 2020, may qualify for Employee Retention Credits even if they do not meet the revenue decline or shutdown tests. These recovery startup businesses can claim credits for certain quarters in 2021.
Step 4: Determine Employee and Wage Eligibility
The size of your workforce impacts which wages can be claimed for Employee Retention Credits.
- Small Employers: For 2020, those with 100 or fewer full-time employees can claim wages for all employees during eligible quarters. For 2021, the threshold increases to 500 or fewer employees.
- Large Employers: Can only claim wages paid to employees who were not providing services during eligible periods.
Include qualified health plan expenses in your calculations, as these are part of Employee Retention Credits.
Step 5: Avoid Overlapping Claims
While Employee Retention Credits can be used alongside PPP loans, the same wages cannot be counted for both programs. Careful allocation is necessary to maximize total benefits without violating IRS rules.
Step 6: Maintain Documentation
The IRS requires detailed records to support Employee Retention Credits claims. Keep copies of payroll records, government orders, financial statements, and any correspondence related to operational disruptions.
Step 7: File Timely Claims
Employee Retention Credits are claimed by amending payroll tax returns, typically using Form 941-X. You must file before the statute of limitations expires, which is generally three years from the original filing date.
Why This Checklist Matters for All Businesses
Both small and large businesses can benefit from Employee Retention Credits, but the rules vary depending on size and operational circumstances. Following a structured checklist ensures you do not miss out on valuable credits due to oversight or misunderstanding.
Conclusion
An organized ERC eligibility checklist is essential for maximizing your chances of claiming Employee Retention Credits successfully. At [PURCHASE TAX CREDITS], we help businesses of every size navigate the complex rules, gather the right documentation, and file accurate claims. By reviewing each step carefully, you can determine your eligibility and take full advantage of Employee Retention Credits before time runs out.