There is a lot of confusion about the rules related to deadlines for Employee Retention Credit deadline claims, and even many professional advisors are a bit puzzled. There still is time left as late as April 15, 2025.
ERC Deadline Timeline for Filing
If you are seeking employee retention credit for 2021, the only deadline you should keep in mind is April 15, 2025. And if you seek ERC credits for the quarters of 2020, the deadline is April 15, 2024.
Note that the first quarter of 2020 is not applicable because pandemic mandates didn’t roll out until the end of the first quarter.
The only way to file the ERC is by submitting Form 941-X. Businesses must submit a different 941-X for every quarter if they want to claim ERC for that time period. Although original Form 941s must be filed by the last day of the month at the end of each quarter, businesses generally have three years to submit 941-X forms.
While this deadline may sound far off in the future, it is a good idea to submit your 941-X form at the earliest possible time frame. This is because the IRS is currently in the process of reducing the tax credits that businesses can claim with the ERC.
With that said, there is plenty of time for you to gather relevant documents and increase your chances of a successful application. It should be noted that the IRS currently has a massive backlog to work through, and the longer you wait to file your ERC application for 2021, the longer it will take for the check to arrive.
The Basics of Employee Retention Credit 2021
Congress established the Employee Retention Credit (ERC) as part of the CARES Act to help businesses pay their employees. ERC was soon amended by other laws such as CAA and ARPA. Each act increased the number of tax credits for businesses.
Under the ERC, small to midsize businesses in 2020 can be eligible to receive 50% of wages that were disbursed between March 13 to December 31, 2020. For 2021, ERC is applicable for wages paid between January 1, 2021, to September 30, 2021.
Businesses that applied for a PPP loan are also eligible (although the CARES act formerly didn’t allow employers to file both PPP and EREC). The amount that is covered per employee is $10,000.
The CAA increased the tax credit to 70% for wages paid in 2021. This also includes health insurance costs. Businesses can receive a maximum credit of $10,000 per employee per quarter for the first Q1 and Q2 of 2021.
How the Infrastructure Investment and Jobs Act Amended ERC
The Infrastructure Investment and Jobs Act (IIJA) act was passed on December 2, 2021. The act revised the deadline for ERC to October 1, 2021, and eliminated the fourth quarter of 2021, which reduced the credit eligibility amount to $21,000 from $28,000. This may be an unwelcome change for businesses that were expecting to receive ERC for the fourth quarter.
Which Employers Qualify for Employee Retention Credit?
Eligibility for ERC is based on how the business was impacted in 2021 by the pandemic, including its number of employees, operational hours, and gross receipts.
Gross receipts in 2021 for business must be 20% lower per quarter compared to the same quarter in 2019. Businesses that did not exist in 2019 can use a comparison to 2020 for the purposes of ERC.
For 2021, eligible employers can receive a credit equal to 70% of qualifying wages for each quarter. The maximum credit per quarter is $7,000 per employee.
Here is a brief overview of eligibility for 2021:
- Must have fewer than 500 employees
- Having partially or completely stopped business operations due to government orders
What Documents Do I Need to File ERC?
Employers must submit a lot of paperwork to the IRS to receive tax credits. The most important form is the Employer’s Quarterly Federal Tax Return, or Form 941. This form reports all wages given to workers for each quarter, deferred compensation, Medicare taxes, and income tax.
To amend your taxes for the Employee Retention Credit program the business must complete Form 941X. This is an update for the previously filed Form 941.
Moreover, employers must provide a copy of their payroll records to calculate the total wages given to qualifying employees. In addition, employers must also submit a statement verifying the number of employees employed during this period. They must also submit Forms 1099 MISC and W-2 if needed, as ander documents verifying employee statuses such as driver’s licenses and social security cards.
Employers must submit copies of payroll stubs and paychecks from the period to give a detailed account of their employees’ amounts.
It will also help if the employer provides supporting evidence to show how wages were paid (such as checks or direct deposits), including evidence for the number of hours that employees worked each week before and after closure.
Firms must submit a written statement that they fulfill all the conditions needed to receive the ERC credits. Moreover, businesses must also submit Form 5884-C so that the IRS can process their application. This form provides more information about how many credits are being requested and how they should be applied to quarterly returns in the future.
Businesses must take great care to ensure that all the information in their document is accurate. Failure to provide accurate information may result in your credits being denied by the IRS.
Given that all these processes are difficult to navigate, it is recommended to work with a tax advisor to handle the documentation. A tax consultant will help you:
- Determine if your company is an eligible employer
- Calculate your credits
- Accurately compile and prepare all the necessary documents and forms
- Coordinate with the payroll processing company
- Submit the documents to the IRS promptly
Employee Retention Credit Deadline Options
The deadline for ERC in 2021 is April 15, 2025. This gives you plenty of time to prepare documentation accurately. Just make sure to start the application process at the earliest because the IRS is constantly revising the rules.
Using Federal Tax Credits ERC can expedite the process and help in avoiding a possible IRS audit.
If you need any help filing, have any questions, or just want a complimentary ERC tax credit eligibility, then fill out the contact form and see availability today.
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