There are a couple tests to make sure that your startup is eligible as a recovery startup for these ERC. The first one was the business started on or after February 15th, 2020. Basically when COVID hit the United States. The second one is the company must have had an average of $1 million or less in gross receipts every year.
If your company was started in 2020 and you are filing for this in 2021, you’re basically just looking at the 2020 year. Did your company do less than a million dollars in gross receipts / revenue in 2020? And for most startups except for the just ginormous rocket ships, they’re all going to be able to answer yes. They’re going to qualify for that because it’s very rare that a company can do a million dollars in revenue in its first nine or ten months of operation.
So the good news here is your startup can save basically $7,000 per employee on a tax credit, assuming they pay at least $10,000 or more to that employee in the eligible time periods.
It’s capped at $50,000 per quarter. So $50,000 in Q3, $50,000 in Q4, 2021. So basically you need about seven or eight employees to, and assuming you’re paying typical startup engineering wages, you will max out at $50K per quarter in credits. So you’re looking at $100,000 tax credit on payroll taxes over the two quarters.
The way you claim that is to work with your payroll provider and your friendly startup CPA firm, Kruze Consulting, to make sure you’re eligible and actually go through a questionnaire. Then your CPA can walk you through the process that you’ll use in your payroll provider to claim the credit (our team has been doing Zoom share screens to help our clients walk through the process with Gusto, Rippling and other popular payroll providers.)
Providers like Rippling, Gusto, Justworks, TriNet, have really good workflows for this. And you will answer the questions in the payroll system’s site. Again, questions like “did you start after February 15th, 2020. Did you do less than a million dollars in average revenue?” And a couple more questions, and then they will actually enable your company to have the tax credit. So it’s actually really slick. Shout out to our payroll provider relationships for doing a great job, putting this into their software very quickly and shout out to the Biden administration and Congress for putting this act into place.
At Kruze we have hundreds of companies that actually qualify for this, so it’s pretty exciting. But it’s also a little overwhelming, it’s a lot of work, but we’re happy to do it and love helping our companies. So just remember if your company was started after February 15th, 2020, you are probably eligible for the recovery startup business portion of the employee tax credit. And just reach out to your CPA firm.
In order to meet the definition of a “Recovery Startup Businesses’’ in the context of employee retention tax credits, as authorized by the US Congress, a company must have 1) been founded after Feb 15, 2020; and 2) also have less than $1 million in revenue. Consult with your CPA for more details.
Yes. In 2021, Congress passed new legislation that let “recovery startups” - ones founded after Feb 15, 2020, to claim the Employee Retention Credit (ERC). The company must also have less than $1 million in revenue.
Congress/the IRS have capped the ERC for recovery startups at $50,000 per quarter. With two quarters to apply these credits, that’s $50,000 in Q3, $50,000 in Q4, 2021. So you’re looking at $100,000 tax credit on payroll taxes over the two quarters, assuming you have seven or eight engineering employees making typical silicon valley wages.
The best way to let the IRS and Federal Government know that you are claiming the ERC is to work with your payroll provider and your CPA firm. Providers like Rippling, Gusto, Justworks, TriNet, actually have really good workflows for applying for the ERC.