How to Apply for ERC Credit 2021

You’ve weathered a tough economic downturn and kept your staff on payroll. Good news – you’re likely eligible for the Employee Retention Credit (ERC) 2021.

This refundable tax credit could provide significant relief to your business. Don’t know where to start? Don’t fret, we’re here to guide you through the process of how to apply for ERC Credit 2021, ensuring you understand eligibility criteria and what wages qualify.

Let’s dive in!

CAN I STILL APPLY FOR ERC?

Yes, you can still apply for the Employee Retention Credit (ERC) for 2021, even though it’s now 2023, as long as you do it before the final deadline in 2025.

The IRS allows businesses to retroactively claim this credit if they meet the eligibility criteria outlined under various acts passed between March 2020 and November 2021.

To qualify, your business must have experienced either a suspension of operations or a decline in gross receipts due to COVID-19 disruptions. These factors were modified by different laws over time, so understanding which rules apply to your case is crucial.

Start by determining your eligibility based on specific conditions present during each quarter of operation in 2021. Consider aspects like forced closures, quarantines, or significant drops in gross receipts compared to the same quarters in 2019.

Next is calculating your credit. It’s refundable and based on payroll taxes paid out by your business. However, remember that only wages not covered by other credits such as Work Opportunity Tax Credit or forgiven under PPP can be considered.

Once you’ve determined eligibility and calculated potential credits, file an amended return using Form 941-X before April 15th, 2025. But brace yourself for some wait time; refunds typically take about six months to process but could be delayed further due to backlogs.

In summary: Yes, you can still claim ERC for eligible quarters in 2021 until April of 2025! So don’t leave money on the table – review your circumstances today and make sure to get what’s rightfully yours!

HOW TO APPLY FOR EMPLOYEE RETENTION CREDIT IN 4 STEPS

How to apply for Employee Retention Tax Credit 2021:

Navigating the Employee Retention Credit process requires careful evaluation on several fronts.

First, you’ll need to evaluate your eligibility based on the size of your business; different rules apply depending on whether your organization is considered small or large.

Upon establishing this, it’s imperative to assess if and how your operations were suspended due to Covid-19 directives.

This leads into the next crucial step: calculating your qualified wages – these form the basis for determining how much credit you’re eligible for.

Evaluate your eligibility based on size

You’ll need to carefully evaluate your business size as it plays a crucial role in determining your eligibility for the ERC. For 2020, if you had less than 100 full-time employees, you could consider all wages as ‘qualified wages.’ However, larger businesses could only count wages paid for not providing services.

For 2021, the rules change slightly:

• The threshold for small businesses increases to 500 full-time employees.
• Businesses of this size can claim ERC on all employee wages whether they worked or not.
• This change makes more companies eligible for the credit in 2021 than in 2020.
• Remember that full-time is defined as working at least 30 hours a week or 130 hours a month in 2019.

Take time to assess your situation accurately; it’s essential for your application success.

Evaluate your suspension of operation

It’s crucial to understand that the evaluation of your business’ suspension of operations carries different criteria for 2020 and 2021.

For 2020, you’ll need to show a full or partial shutdown due to a governmental order or significant economic decline compared to the previous year. Specifically, a drop in gross receipts by at least 50% could qualify your business.

In contrast, the criteria for 2021 require demonstrating a decrease in gross receipts in any of the first three quarters. This decline should be less than 80% of the same quarter’s receipts in 2019.

Essentially, both years’ requirements compare your financial hardship with pre-COVID levels from 2019. Understanding these distinctions ensures an accurate assessment for the Employee Retention Credit eligibility.

Calculate your qualified wages

Next, you’ll need to crunch some numbers to figure out your qualified wages for the pandemic period. Remember, the calculation of these wages varies depending on the size of your business and the year for which you’re claiming.

• For 2020: ERC equals 50% of qualified wages with a maximum value of $5,000 per employee in a given calendar quarter.
• For 2021: The percentage rises to 70%, resulting in a potential max value of $21,000 per employee.
• Small businesses: All paid wages during operational suspension count as qualified wages.
• Large businesses: Only wages for time employees weren’t providing services due to COVID or governmental orders are considered.

Understanding these nuances ensures an accurate claim and maximizes your potential benefit.

File and claim your refundable tax credit using Form 941-X

Filing Form 941-X is the next crucial step to claim your refundable tax credit. On this form, the IRS focuses on federal withholdings from employees’ wages, tips, and taxes. Once filled out accurately with all relevant information, you can easily file it either by mail or electronically through the federal e-File system.

Be mindful of due dates which depend on the quarter for which you’re applying the Employee Retention Credit (ERC). If a deadline falls on a weekend or holiday, it gets extended to the following workday.

While claiming your credit is immediate upon filing Form 941-X, receiving your actual refund may take between 6 and 16 months due to current IRS backlogs.

We would recommend using an ERC tax expert to help you work through the process. Clicking on the image below takes you to our recommended ERC tax expert. Go through the questions which are aimed at quickly finding out if you qualify for ERC or not, not everyone is eligible.

But What is the Employee Retention Credit?

The Employee Retention Credit is a refundable tax credit that businesses can claim on eligible wages paid to their employees. It was introduced as part of the CARES Act in 2020 and was designed to encourage businesses to retain their staff during the economic downturn caused by COVID-19.

Here are some key points you need to know about the ERC:

• It covers up to 50% of qualified wages paid from March 13 – December 31, 2020, and up to 70% of such wages paid in each quarter of 2021.
• The maximum credit per employee is $5,000 for 2020 and $7,000 per quarter (up to $28,000) for eligible quarters in 2021.
• The eligibility for ERC was extended through June 30, 2021, by the Consolidated Appropriations Act. The American Rescue Plan further extended it until December 31, 2021.
• Changes brought by these laws have altered criteria such as business suspension due to government orders and significant decline in gross receipts.

Remember that the specifics of the ERC depend on your unique business circumstances, such as size and operational impacts due to COVID-19. Also, keep an eye out for potential changes based on legislative amendments that could affect your eligibility or benefits.

Applying for ERC involves filling out Form 941-X, which reports your employment taxes. Make sure your application aligns with IRS guidelines so you don’t miss out on any benefits you’re entitled to under this relief program.

Employee Retention Credit Eligibility: Who Can Claim?

As we dive into the eligibility criteria for the Employee Retention Credit (ERC), you’ll find that it’s designed to provide relief for a variety of business situations impacted by COVID-19 restrictions.

If your trade or business was fully or partially suspended, or if you had to reduce operating hours due to government orders, you’re likely eligible for this credit.

Similarly, if you’re an employer who experienced a significant decline in gross receipts, or if you classify as a Recovery Startup Business under the American Rescue Plan Act guidelines, there are provisions within the ERC that could greatly benefit your financial recovery efforts.

A trade or business that was fully or partially suspended or had to reduce business hours due to a government order.

You’ll need to demonstrate that your trade or business was fully or partially suspended or had to reduce hours due to a government order when applying for the 2021 ERC. This isn’t always straightforward; some businesses, like those considered essential, may not qualify if they didn’t experience disruption in their supply of crucial goods. Similarly, businesses able to continue operations through telework might not meet this criterion.

However, don’t let this discourage you. Here’s what you should consider:

• Does your business fall into the ‘essential’ category?
• Did your supply chain suffer disruptions?
• Could your operations continue unabated via telework?
• Remember: even if you don’t pass these tests, you might still qualify under other criteria.

Navigating tax regulations can be tricky. Ensure you’re well-informed and seek professional advice if needed from an ERC Tax expert.

An employer that has a significant decline in gross receipts

Businesses that have experienced a significant decline in gross receipts might be eligible for some financial relief through the Employee Retention Credit (ERC). Under the CARES Act, if your gross receipts in a calendar quarter fell below 50% compared to the same quarter in 2019, you may qualify. With the Consolidated Appropriations Act of 2021, eligibility expanded to include businesses with a more than 20% drop in gross receipts compared to 2019.

Remember to apply this safe harbor consistently across all entities as per Revenue Procedure 2021-33.

To claim ERC, file an amended return using IRS Form 941-X and ensure you have necessary documentation like tax returns and payroll records. This could provide much-needed support for your business during these challenging times.

Recovery Startup Business

If you’ve begun carrying on trade or business after Feb. 15, 2020, and your annual gross receipts do not exceed $1 million, then you might qualify as a Recovery Startup Business under the American Rescue Plan Act of 2021.

As a Recovery Startup Business:

• You’re entitled to up to $50,000 per quarter in the third and fourth quarters of 2021 only.
• You should not be eligible for the Employee Retention Tax Credit (ERTC) under categories like partial/full suspension of operations or decline in gross receipts.
• All qualified employee wages can be considered for credit purposes, irrespective of the number of employees.
• Your eligibility status can change per quarter based on distinct criteria.

Remember that filing Form 941-X is key to claim this credit retroactively.

What wages qualify when calculating the ERC?

You’re about to delve into a crucial discussion on the major legislative acts that have shaped the Employee Retention Credit (ERC) and its application to qualifying wages.

You’ll explore the nuances of the CARES Act of 2020, which introduced this refundable tax credit, followed by significant amendments made by the Consolidated Appropriations Act in 2021.

Lastly, you’ll understand how the American Rescue Plan Act of 2021 further expanded eligibility and benefits under this program, all contributing to your comprehensive understanding of these complex tax regulations.

CARES Act – 2020

Under the CARES Act in 2020, it’s critical to understand that your business’ gross receipts needed to be below 50% compared to the same quarter in 2019 for you to be eligible. This was a crucial measure aimed at helping businesses significantly affected by the pandemic.

Moreover, depending on your number of employees, different rules applied:

• If you had more than 100 full-time employees, only wages for those not providing services could qualify.
• For businesses with 100 or fewer full-time workers, all employee wages could count towards the Employee Retention Credit (ERC).
• Leave under FFCRA couldn’t be included as qualified wages.
• Larger employers could only claim this credit for non-working employees.

Understanding these nuances can help ensure accurate ERC applications.

Consolidated Appropriations Act – 2021

Having navigated the complexities of the CARES Act, let’s turn our attention to 2021.

Under the Consolidated Appropriations Act, significant changes were introduced that could impact your business. Specifically, the employee limit for determining which wages are applicable for the Employee Retention Credit (ERC) was bumped up to 500. This increase broadens eligibility and potentially boosts your claimable credit amount.

Remember, though, just as in 2020, you still need to meet specific requirements such as demonstrating a disruption in operations or a sharp drop in gross receipts compared to 2019 figures.

Navigating tax laws can be complex; it’s important you understand these changes thoroughly before filing your amended returns – accuracy is key when dealing with tax credits like ERC.

American Rescue Plan Act – 2021

Let’s now delve into the modifications brought about by the American Rescue Plan Act of 2021. This Act introduced more options for determining eligibility based on preceding quarter’s gross receipts and added a new category called Recovery Startup Business.

This Act offered some significant changes. It allowed certain ‘hardest-hit’ businesses that faced severe financial distress to claim credit against all employees’ qualified wages. These distressed businesses are those whose quarterly gross receipts were less than 10% of what they were in a comparable quarter in 2019 or 2020. This provision only applies to the third quarter of 2021 for businesses that aren’t Recovery Startup Businesses.

The IRS put guardrails in place to prevent wage increases counting toward the credit once an employer is eligible for the ERTC.

Understanding these changes can help you navigate your business’s tax situation more efficiently.

We would recommend using an ERC tax expert to help you work through the process. Clicking on the image below takes you to our recommended ERC tax expert. Go through the questions which are aimed at quickly finding out if you qualify for ERC or not, not everyone is eligible.

Conclusion

Yes, you can still apply for the ERC! Remember to use IRS Form 941-X and keep all necessary documentation handy.

Whether you’re self-applying or using a CPA or ERC Tax expert company, ensure you meet all eligibility requirements and correctly calculate qualifying wages.

Don’t miss the April 15th, 2024 deadline for 2020 ERC or April 15th, 2025 for the 2021 ERC.

Being proactive now could save your business money in these challenging times.