Reference
ERC Term Glossary
Key Employee Retention Credit and IRS audit terms, defined in plain language. Jump to a letter below.
A
- 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 (the employer’s share of Old Age, Survivors, and Disability Insurance — social security tax); or so much of the taxes imposed on employers by § 3221(a) (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) (the employer’s share of Hospital Insurance — Medicare tax), or so much of the portion of Tier 1 RRTA tax that is equivalent to the employer’s share of Medicare tax.
B
- 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.
E
- Eligible Employer
- A business that meets the 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.
G
- Governmental Order
- An order that meets three requirements: (i) it is an order from a Federal, State, or local government — and if not from the Federal government, it must be from a State or local government with jurisdiction over the employer’s operations; (ii) the limitation in the order must be due to COVID-19 and relate to the suspension of the employer’s trade or business; and (iii) no particular form (order, proclamation, or decree) is required, but statements from officials — including comments at press conferences or in media interviews — and general declarations of emergency are not considered governmental orders for ERC purposes.
- Gross Receipts
- Has the same meaning as gross receipts under § 448(c) of the Code — gross receipts for the taxable year, including total sales and all amounts received for services. Gross receipts also include receipts from incidental and outside sources, such as dividends, rents, and royalties.
I
- 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 to ensure compliance with tax laws and regulations, including ERC claims.
P
- Partial Suspension
- Exists if either (i) the gross receipts from the affected portion of business operations are not less than 10% of total gross receipts, or (ii) the hours of service performed by employees in that portion are not less than 10% of the total hours of service performed by all employees — both determined using 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 the late payment or underpayment of taxes.
Q
- Qualified Wages
- Wages paid by an eligible employer that qualify for the ERC, subject to certain limitations and criteria.
R
- Recovery Start-Up Business
- Any employer that (A) began carrying on a trade or business after February 15, 2020, and (B) has average annual gross receipts (determined under rules similar to § 448(c)(3)) for the 3-taxable-year period ending with the taxable year preceding the calendar quarter that do not exceed $1,000,000.
S
- 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 a tax return is filed.
T
- 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 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 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.
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Our tax attorneys and CPAs can explain how any of these apply to your ERC claim.