Once you've determined that you meet at least one of the qualification requirements for filing an ERC claim, the next thing you need to do is figure out who your qualified employees are.
While this step sounds easy, it can be a little tricky, and it's the place where most businesses tend to miscalculate their refund amount.
Usually these mistakes come from undercounting the number of qualified employees and qualified employee wages. When that happens, they're leaving money behind on the table that they could probably use to keep their business moving forward.
Determining your qualified employees
If you want to maximize the amount you receive from your ERC refund, then you need to have a really good understanding of how to figure out all of your qualified employees.
The good news is that there's pretty much only one factor you have to worry about when it comes to determining which employee wages are qualified: the size of your business in any given quarter of 2019.
More specifically, the rules are based on how many full-time W2 employees you had on your 2019 quarterly payroll. And for the purposes of ERC, "full-time" is defined as working either an average of 30+ hours per week or 130+ hours per month.
Once we know how many full-time employees you had in 2019, we can compare that number against the ERC guidelines for small or large businesses.
Before we just into what those guidelines are, one thing you should know is that the definitions for small and large businesses are different for 2020 and 2021.
Because of these different definitions, you could potentially qualify as a large business one year and as a small one in the other. That's where the extra confusion can come in.
To see what we mean, go ahead and take a look at the actual requirements to qualify as small business for both years:
- In 2020, you will need to have had 100 or fewer full-time employees in 2019
- In 2021, you will need to have had 500 or fewer full-time employees in 2019
Now let's apply that really quickly to an example.
If you had 110 full-time W2 employees in the third quarter of 2019, then you'd be considered a large business for your third quarter 2020 claim and as a small business for your third quarter 2021 claim.
So why does this matter?
Well, the size your business gets classed as directly affects which employee wages are qualified to claim on your ERC refund.
If you're considered a "small" employer, then all of your employees, both full- and part-time, are qualified, and you can include them in the ERC calculation for any given quarter.
But if your number of full-time employees gets into "large" employer territory, then the only qualified employees you can use to claim an ERC refund are those who were paid but didn't provide any services.
Basically, as a large employer you can only claim a credit for wages of employees you kept on your payroll despite being furloughed or facing a reduction in hours caused by conditions of the pandemic.
Find out who your qualified employees are
Now that you have a more general understanding of which employee wages qualify under specific conditions, it's time to take your ERC claim to the next step.
We're here to help you determine exactly which of your business's specific employees qualify for your claim so you can have a better idea of what your claim might look like and how much you could get.
Our initial intake and estimated refund amount are both free. All you have to do is contact us today, either by phone or by filling out our online form.