If you’re a business owner navigating the complexities of tax season, you should familiarize yourself with the Employee Retention Credit (ERC aka ERTC). This refundable tax credit can provide significant financial relief by offsetting some payroll costs.
As part of recent pandemic-related legislation, it’s undergone various changes and updates that may impact eligibility or value. Understanding who qualifies, which employees count toward eligibility, and how to calculate the size of your ERC will be essential for maximizing this benefit.
Whether you’re a seasoned business or just starting out, this guide will walk you through everything from seeking a professional to how to claim Employee Retention Credit to determining when your claim deadline is. Navigating these waters may seem daunting at first glance, but we’re here to make it more manageable and ensure you don’t leave money on the table this tax season.
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.
How to Claim the ERC
To claim the Employee Retention Credit, you’ll need to accurately calculate your qualified wages and complete Form 941-X. File it along with your quarterly federal tax return. Remember, this crucial step could potentially qualify you for a significant refundable credit.
Here’s how to claim ERC:
First, determine your eligibility for the ERC. Then, calculate the total of your qualified wages and related health insurance costs. You’ll report these details on Form 941 when filing your quarterly IRS returns.
You’ll also need to complete and submit Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. This form is used in conjunction with your regular quarterly tax filings. If you have any unused credits at the end of a quarter or year, carry them forward into succeeding periods.
As an employer, if eligible, you can retain employment taxes up to the ERC amount without penalty rather than depositing them outright. For employers with less than 500 full-time staff members, an advance payment request can be made using IRS Form 7200.
Businesses that failed to initially claim their ERC still have until 2024 to do so retroactively via Form 941-X.
Use a Professional
Engaging a financial professional’s expertise can significantly streamline the process, ensuring you don’t double-dip into PPP loan forgiveness and this tax benefit simultaneously. They’re adept at navigating complex tax laws and can provide clear guidance on the intricacies of claiming Employee Retention Credit (ERC).
You may be eligible for this credit, but it’s crucial to understand that its size is dependent on your typical Social Security taxes. It’s here where your accountant and payroll manager show their value.
Your accountant will help figure out how much credit you are entitled to while your payroll company calculates how much tax should remain unpaid to Uncle Sam. Remember, you mustn’t apply the same payroll for both PPP loan forgiveness and ERC—you need expert eyes to ensure no overlaps occur inadvertently.
Don’t let the complexity of claiming ERC deter you from reducing your business’ tax burden. Lean on professionals who know these regulations inside-out—they’ll guide you through every step, helping maximize potential savings while staying in compliance with all relevant legislation. Let them take care of the complexities so that you can focus on what matters most—running your business effectively.
What is the Employee Retention Credit?
It’s a tax break designed to help companies like yours weather the financial storm caused by COVID-19. Enacted in 2020 and extended into 2021, this credit is an incentive for businesses to maintain their workforce during these challenging times.
You could potentially recover up to $7,000 per employee per quarter in 2021 and $5,000 per employee for the entire year of 2020.
ERC is not just a standard deduction but a dollar-for-dollar offset against any federal payroll taxes that your company owes. This means every dollar you claim as an Employee Retention Credit reduces your tax bill by one whole dollar! And if you’ve already paid more than you owe? The IRS will send you a refund check for the difference – it’s money coming back straight into your business’ pocket!
Remember, claiming this credit can be complex with strict eligibility requirements. But don’t let that deter you from exploring this valuable opportunity. With careful planning and understanding of the rules, your business can take full advantage of this significant tax relief.
So why wait? Look into claiming the ERC today!
ERC Changes and Updates
Navigating the changes and updates to the ERC can feel like a maze, but don’t worry – we’re here to guide you through every twist and turn!
When CARES Act first introduced the Employee Retention Credit (ERC) in March 2020, only a few businesses could use it as they had to choose between this credit or a forgivable Paycheck Protection Program (PPP) loan.
However, things changed when Congress amended the ERC twice: once in December 2020 via the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA), and again in March 2021 with the American Rescue Plan Act (ARPA). These amendments broadened eligibility for more businesses.
So, are you eligible now? If you meet certain criteria, yes! You can still claim your ERC within a specific timeframe after filing your tax return or making payment – up to three years after filing or two years post-payment, depending on which happens later.
Who Qualifies?
Wondering if your business falls into the lucky category that qualifies for this assistance? The Employee Retention Credit (ERC) was designed with specific eligibility criteria in mind. It’s crucial to understand these prerequisites before proceeding to claim the credit.
If your operations were fully or partially suspended by a government order due to COVID-19, you’re eligible for ERC. This applies whether you operate a private enterprise or run a non-profit organization.
Alternatively, you may also meet the eligibility rules based on your gross receipts in 2020 or 2021 compared to those of 2019. For example, if any single quarter of 2020 saw a drop of at least 50% in comparison with the same quarter of 2019, then you qualify for this tax relief measure.
Companies that weren’t operating in 2019 aren’t excluded from this benefit either. You can compare corresponding quarters between 2020 and 2021 instead – if there’s been a decrease in revenue, then congratulations! You’ve met the criteria necessary to apply for ERC. Remember though, it’s always wise to consult with your financial advisor when dealing with complex tax matters like these.
Which employees count toward eligibility?
Determining which workers factor into your company’s eligibility for the Employee Retention Credit can be a bit tricky, but it’s crucial to understand how this works. The process slightly differs depending on the size of your company.
- If your business has 100 or fewer full-time employees, all employees count toward eligibility, even if they’re not currently providing service.
- For businesses with over 100 full-time employees, only those who are being paid but aren’t working due to shutdowns or reduced gross receipts qualify.
- It’s important to remember that you can’t claim the same employee for both ERC credit and Work Opportunity Tax Credit within the same period.
- Similarly, wages claimed under ERC can’t also be claimed under section 45S employer credit for FMLA.
Understanding these intricacies can greatly help in maximizing your claim without violating any rules. Make sure you fully comprehend how different factors affect your capacity to claim the Employee Retention Credit.
Additionally, ensure that no double claims are made as this could result in penalties from tax authorities.
How to calculate the size of your ERC
Calculating the size of your ERC can be a bit complex, but it’s essential to get it right to maximize your benefits and stay within the rules.
Start by identifying your qualified wages. If you have fewer than 500 employees, this includes all full-time employee wages paid during periods of shutdown or quarterly gross receipt decline in 2021. For companies with more than 500 employees, only count wages for those not providing services during these times.
Next step is to determine the total amount of qualified wages per employee per quarter. Remember that this is capped at $10,000. Once you have this figure, calculate 70% of that amount – because that’s what you’re eligible to claim as credit against Social Security taxes.
It’s important to note that tax laws are subject to change and interpretation, and while every effort has been made here to provide accurate advice based on current regulations, always consult with a professional for personalized guidance.
Remember these calculations when preparing your claims: the better you understand how they work, the more likely you are to claim accurately and maximize your ERC benefits under existing guidelines.
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.
New Businesses
As a new business owner, you’re in luck because the ERC now includes recovery start-ups like yours that started after February 15, 2020. This exciting development means you can claim the Employee Retention Credit (ERC) for the last quarter of 2021 without having to show a decline in revenue or suspension of operations.
Here are some key factors to keep in mind:
- Your start-up must have less than $1 million in average revenue over the last three years.
- You don’t need to demonstrate any decrease in revenue or halt your operations.
The application period is limited to the last quarter of 2021 only.
Your business is unique as it’s among the few eligible entities for this specific quarter.
Claiming your ERC doesn’t have to be daunting. Ensure you comply with all tax laws and regulations by thoroughly documenting all expenses and revenues associated with your employees. Leverage professional financial advice if necessary.
So seize this opportunity – it’s time for your recovery start-up to reap financial benefits while fostering employee retention. Remember, every dollar counts when growing a successful enterprise!
When is the Deadline?
You’ve got until April 15, 2024, and April 15, 2025, to file for the ERC for the respective years of 2020 and 2021 – it’s a deadline that could make all the difference in your business’ financial health.
Conclusion
In conclusion, claiming your ERC doesn’t have to be a headache. Just understand the rules, know who qualifies, and calculate accurately.
Don’t hesitate to seek professional help if needed. It’s designed to assist businesses like yours during these challenging times.
Stay updated on changes and don’t miss the deadline.
Click on the highlighted words if you want to work through a step-by-step guide to claiming ERC
