ERC Qualifications for Recovery Startup Businesses

If you started a business just before or during the pandemic, you may qualify for the Employee Retention Credit (ERC) as a recovery startup business.?

Previously, newly established businesses didn't qualify for stimulus funding. However, with the American Rescue Plan Act, new companies that began operations after February 15, 2020, and have average annual gross receipts of less than $1 million now qualify for the ERC. This credit can provide up to $100,000 in tax refunds from the IRS.

But what is the ERC program, and do you qualify for an Employee Retention credit as a recovery startup business? Let's cover the basics.

Key Takeaways

• Recovery startup businesses can qualify for the ERC, a refundable tax credit from the IRS.
• To be eligible, your business must have started operations after February 15, 2020, and have average annual gross receipts of less than $1 million.
• The ERC can provide up to $100,000 in tax refunds.
• Brand new businesses can claim the credit for Q3 and Q4 of 2021, up to $50,000 per quarter.

What is the Employee Retention Credit?

The Employee Retention Credit (ERC) is a valuable payroll tax credit provided by the IRS to support businesses during the challenging times brought about by the COVID-19 pandemic. Introduced as part of the CARES Act in 2020, the ERC is designed to help small businesses navigate the financial consequences of the pandemic and retain their employees.

The ERC stands out from other stimulus programs, such as the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL), because there are no specific requirements for how you spend the money. It's also not a loan, so it doesn't have to be paid back. This means businesses have greater flexibility in using the credit to support their operations and employees.

To qualify for the ERC, businesses must only have one or more employees, making it accessible to many small businesses, including recovery startup businesses. This tax credit serves as a lifeline for businesses, providing them with financial relief through reduced payroll taxes.

Key Benefits of the Employee Retention Credit

Key Considerations

• Refundable tax credits against certain payroll taxes Should be claimed following IRS guidelines
• Flexible use of funds to support business operations Companies must meet eligibility criteria
• No requirement for repayment or specified spending Keep accurate records and documentation
• Helps businesses retain and support employees Work with experienced professionals?
• Available to businesses with one or more W2 employees

?

What is a recovery startup business?

A recovery startup business is a business that commenced operations on or after February 15, 2020, with average annual gross receipts of less than $1 million and does not meet the other eligibility criteria of the ERC.?

Previously, new businesses were not eligible for the Employee Retention Credit (ERC). However, these businesses can access stimulus funding through the ERC thanks to the American Rescue Plan Act. If your business meets the specified criteria, you can receive tax refunds of up to $100,000 from the IRS.

?

How do recovery startup businesses qualify for the ERC?

To qualify for the Employee Retention Credit (ERC) as a recovery startup business, you must meet the following criteria:

1. Have one or more employees, excluding owners with more than 50% ownership and certain family members
2. Started operations on or after February 15, 2020
3. Have gross receipts under $1 million for both 2020 and 2021

If you purchased an existing business that was open before February 15, 2020, the classification of your business as a startup business depends on more specific details. Legacy Tax & Resolution Services is available to help you navigate these more intricate elements of the ERC program.

You can't be eligible for the ERC under other requirements, such as a significant decline in gross receipts or government-imposed orders/restrictions. Meeting these criteria will make your recovery startup business eligible for the ERC, allowing you to take advantage of this valuable tax credit.

?

How is the Employee Retention Credit different for brand-new businesses?

For brand-new businesses, the ERC has provided special provisions. While they can't claim the recovery startup credit for any of Q1 and Q2 of 2021, they can claim the credit for these prior periods if they meet the revenue reduction or government restriction criteria.?

However, recovery startup businesses can claim up to $50,000 in credits for each quarter of Q3 and Q4 of 2021. It's important to note that these businesses must pay taxable wages to staff as employees during the applicable quarters. The entity types that will benefit the most from the ERC are S- or C-Corporations, but all entity types that meet the criteria are eligible.

Here is a breakdown of the differences in the Employee Retention Credit for brand-new businesses:

Period

Credit Amount

Q1/Q2 2021 Not eligible

Q3/Q4 2021 Up to $50,000 per quarter

?

These special provisions allow new businesses to take advantage of the credit as they navigate the challenges of starting up during the COVID-19 pandemic. By claiming the Employee Retention Credit, these businesses can receive substantial financial support to help them grow and thrive.

How much can recovery startup businesses get back from the ERC?

The amount you can get back from the Employee Retention Credit as a recovery startup business depends on the number of employees you have on staff.?

As a new business, you can receive up to $7,000 per employee per quarter, capped at $50,000, for the last two quarters of the year.?

For example, if you have 5 employees, you could receive up to a $70,000 tax refund from the IRS. This money can be used to invest in your business's growth or distributed to the owners.

Employee Retention Credit Tips for Recovery Startup Businesses

To get the most money back from the Employee Retention Credit (ERC), there are a few strategies that recovery startup businesses can implement.?

Understanding the eligibility requirements and taking advantage of specific opportunities can optimize your chances of receiving a substantial payroll tax credit.

Recovery startup businesses must monitor their gross receipts to remain under the $1 million threshold for 2020 and 2021. This is a key qualifying criterion for the ERC and can significantly impact your eligibility to claim the credits.

To navigate the complex eligibility criteria and accurately calculate the credits, working with experienced ERC experts like those at Legacy Tax & Resolution Services is crucial. We specialize in recovery startup businesses and the Employee Retention Credit. Our network of tax professionals can offer valuable insights and guidance to help you make the most of this tax incentive.

Stay informed, consult with professionals, and take proactive steps to optimize your payroll tax credit.

Conclusion

Recovery startup businesses have a unique opportunity to benefit from the Employee Retention Credit (ERC), a refundable tax credit provided by the IRS. By meeting the criteria of starting operations after February 15, 2020, and having average annual gross receipts of less than $1 million, these businesses can receive up to $100,000 in tax refunds. The ERC can provide a significant financial boost to help these new businesses thrive in challenging times.

However, these businesses must understand the qualification requirements and calculate the potential credits accurately. Working with experienced professionals who can guide you through the process is advisable. By leveraging the ERC, recovery startup businesses can access the financial resources needed to fuel growth, retain employees, and navigate the uncertainties caused by the COVID-19 pandemic.

Don't miss this valuable opportunity if you own a recovery startup business. Take advantage of the Employee Retention Credit and position your business for long-term success.

?

To find out more or to get started, click Employee Retention Tax Credit.

?