ERC Term Glossary

Applicable Calendar Quarter: The specific time periods within which qualified wages are paid, determining the eligibility and calculation of the ERC.

Applicable Employment Taxes: Depending on the taxpayer, the taxes imposed on employers by

§ 3111(a) of the Code (employer’s share of the Old Age, Survivors, and Disability Insurance (social security tax)), OR so much of the taxes imposed on employers by

§ 3221(a) of the Code (Tier 1 tax under the Railroad Retirement Tax Act (RRTA)) that are attributable to the rate in effect under § 3111(a) OR under § 3111(b) of the Code (employer’s share of Hospital Insurance (Medicare) tax), or so much of the portion of Tier 1 tax under the RRTA that is equivalent to the employer’s share of Medicare tax.

Business: The term trade or business generally includes any activity carried on for the production of income from selling goods or performing services. It is not limited to integrated aggregates of assets, activities, and goodwill that comprise businesses for purposes of certain other provisions of the Internal Revenue Code.

Eligible Employer: A business that meets specific criteria outlined by the IRS to qualify for the ERC.

ERC (Employee Retention Credit): A tax credit provided to eligible employers as part of COVID-19 relief efforts, designed to encourage businesses to keep employees on payroll.

Governmental Order: An order which meets the three requirements – i) an order from a Federal, State, or local government and if the orders are not from the Federal government, they “must be from a State or local government that has jurisdiction over the employer’s operations;” ii) the limitation provided in the governmental order must be due to COVID-19 and “relate to the suspension of an employer’s operation of its trade or business;” and iii) no particular form (e.g., order, proclamation, or decree) is required to qualify as a governmental order, but statements from governmental officials, including “comments made during press conferences or in interviews with the media,” and general declarations of emergency are not considered governmental orders for the purpose of ERC.

Gross Receipts: The same meaning as gross receipts under § 448(c) of the Code, meaning gross receipts for the taxable year, to include total sales and all amounts received for services. Gross receipts also include receipts from incidental and outside sources, such as dividends, rents, royalties, etc.

Interest: The cost of borrowing money, typically applied by the IRS to unpaid taxes or penalties owed by taxpayers.

IRS Audit: An examination of a taxpayer’s accounts and financial information by the Internal Revenue Service (IRS) to ensure compliance with tax laws and regulations, including ERC claims.

Partial Suspension: If either (i) the gross receipts from the portion of the business operations is not less than 10 percent of the total gross receipts (both determined using the gross receipts of the same calendar quarter in 2019), or (ii) the hours of service performed by employees in that portion of the business is not less than 10 percent of the total number of hours of service performed by all employees in the employer’s business (both determined using the number of hours of service performed by employees in the same calendar quarter in 2019).

Penalty: An additional fee imposed by the IRS for failure to comply with tax laws or regulations, such as late payment or underpayment of taxes.

Qualified Wages: Wages paid by an eligible employer that qualify for the ERC, subject to certain limitations and criteria.

Recovery Start-Up Business: Any employer— (A) which began carrying on any trade or business after February 15, 2020 , and (B) for which the average annual gross receipts of such employer (as determined under rules similar to the rules under § 448(c)(3)) for the 3-taxable-year period ending with the taxable year which precedes the calendar quarter for which the credit is determined under subsection (a) does not exceed $1,000,000.

Statute of Limitations: The time limit set by law within which the IRS can assess additional taxes or penalties, typically three to six years from the date of filing a tax return.

Tax Compliance: The act of following all relevant tax laws, regulations, and reporting requirements to ensure accurate and timely payment of taxes.

Tax Credit: A dollar-for-dollar reduction in the amount of tax owed by a taxpayer, directly reducing the tax liability.

Tax Deduction: An amount subtracted from adjusted gross income to reduce taxable income, thereby lowering the amount of tax owed.

Tax Refund: A reimbursement of excess taxes paid to the IRS, often issued to taxpayers who have overpaid their tax liability during the year.

Tax Return: A form filed with the IRS by individuals and businesses to report income, calculate taxes owed, and claim deductions, credits, and exemptions.

Taxable Income: The portion of income subject to taxation after allowable deductions, exemptions, and adjustments have been accounted for.

Taxpayer: An individual or entity subject to taxation by the IRS, responsible for reporting income, expenses, and other relevant financial information.

Trade: The term trade or business generally includes any activity carried on for the production of income from selling goods or performing services. It is not limited to integrated aggregates of assets, activities, and goodwill that comprise businesses for purposes of certain other provisions of the Internal Revenue Code.