Recovery Startup Business and ERC
Companies that were founded after February 15th, 2020 are eligible for the Employee Retention Tax Credit (ERC or ERTC’s), also known as a ‘Recovery Startup Business’. This tax credit aims to help new businesses with their cash flow during difficult times by providing them with financial incentives when hiring employees. The American Rescue Plan Act of 2021 allows recovery startups to receive up to 80% of wages paid for each employee from June 30, 2021 until January 1, 2022.”
Eligibility
To be eligible as a recovery startup business for the ERC, there are two tests to consider:
- The first is that your business was established on or after February 15th, 2020 - when COVID reached the US.
- The second is that your company must have had an average of $1 million or less in gross receipts yearly. If you're filing for this in 2021 and started last year, then you only need to focus on 2020's revenue: did it come to less than $1 million?
For most startups, they'll easily pass this test since it's unlikely that a firm can generate such high earnings within 9-10 months of operation.
How Much Can My Startup Business Receive?
Your startup can receive approximately $7,000 per employee in tax credits if they are paid a minimum of $10,000 during the eligible time periods.
This amount is capped at $50,000 for each quarter (Q3 and Q4 2021). You reach the max of $100,000 with around seven or eight employees on payroll taxes over both quarters.
So, if you thought you were not eligible for ERC funding because you started your business after Feb 2020, aren't you glad you found out you do! Although it is not as much as regular ERC allowance for those that were in business prior to Feb 2020, surely it will come in handy.