FAQs About The California Employee Retention Credit
California employers are encouraged to take advantage of the California Employee Retention Credit before it expires. But what is this tax credit? Who qualifies? Is ERC taxable in California? In this article, Dominion Enterprise Services’ CPA Skyler Kressin breaks down the ERC and how it can benefit your business.
Like many business owners, California employers were subjected to extreme challenges during 2020 and 2021 and even extending into 2022. Business operations often were fully or partially suspended due to state or local health orders, revenue swings occurred unexpectedly, labor shortages abounded, and the unknowns related to global economic conditions created a difficult environment for businesses of all stripes due to COVID-19.
In the midst of these difficult times, various federal programs were created to mitigate these challenges, including the CARES Act and the American Rescue Plan Act. Each of these had provisions for relief, such as advance payment programs or forgivable business loans such as the Payment Protection Program (PPP loan).
While many businesses took advantage of these relief provisions, the sheer volume of legislation signed into law in the last several years has resulted in some of the key relief provisions for employers to be overlooked in the effort to keep the lights on and business flowing.
One such relief provision that consistently has been overlooked was created specifically for employers who continued to pay wages and federal employment taxes throughout the official “pandemic period” (March 12, 2020, through the third quarter of 2021) in the form of an employer tax credit, officially called the Employee Retention Credit (ERC).
The good news is, for California employers specifically, this federal tax credit may be much easier to obtain than for those who own and operate businesses in other states, due to how eligibility works.
High-level Features of the ERC for California Employers:
• The credit is up to $26,000 per employee for a fully eligible employer.
• The credit is a federal refundable tax credit, meaning you can claim a refund directly in the form of a check from the IRS, and the ERC is NOT a loan or grant through a bank like the PPP.
• That said, the other relief programs, (such as the PPP) do interact with the ERC but importantly, do NOT make you ineligible for the ERC as was previously widely believed – even those who received both rounds of PPP funding are still potentially eligible for the ERC.
• The claim is made through federal payroll tax filings and entails tax calculations customarily performed by tax professionals.
• The eligible filing period for the ERC begins to expire in April 2023 as the statute of limitations for refunds begins to sunset.
Who is Eligible for the ERC?
1. Gross Receipts Test
2. Trade or Business Operations Disruption Test
Is ERC Taxable in California?
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Don’t be the next victim of ERC mistakes!!
If you want to learn more about the credit and the process for claiming it, be sure to check out our short e-book that goes through the top five mistakes we see time and time again in the restaurant and other industries when it comes to the ERC