Many businesses are under the impression that ERC funding for businesses has come and gone. That is not true at all. DEPENDING ON THE BUSINESS QUARTER, the IRS ERC can be claimed as late as April 2025.
Confusion Surrounding the Employee Retention Credit
2020 was a rough year for many businesses because they were forced to shut down operations or work in a restricted capacity. The dwindling gross revenue and social distancing measures meant that employers struggled to pay employees, often having to remove them from the payroll.
This is why the government decided to intervene with the CARES Act (or Coronavirus Aid, Relief, and Economic Security) to encourage businesses to keep employees on their payroll.
What does the tax credit entail? It means that you will receive a letter from the IRS stating that you have an overpayment in your account. A refund check should then arrive within a week or so. This is a huge incentive for SMEs and large enterprises affected by the pandemic. The only catch is that qualifying for ERC has certain requirements that the IRS keeps updating every now and then.
Navigating these requirements can be tough for businesses unless they stay on top of their federal tax returns and have a robust payroll system.
The IRS Employee Retention Credit – Who Qualifies?
The eligibility requirements for ERC are simple enough, and firms should satisfy one of two conditions:
- Having forced to shut down operations either partially or entirely in 2020 after orders from the government; or
- Experiencing a significant decline in gross receipts due to the pandemic
The eligibility rules were updated for 2021, and being considered for the credit required more than a nominal percentage of business operations to be suspended.
At first, the tax credit was restricted to 50% of qualified wages with a maximum of $10,000 per employee per year, allowing a tax credit of up to $5,000 for wages paid between March 13, 2020, to December 31, 2021. The IRS updated this to 70% of qualified wages for 2021. The employee wage limit was also increased from $10,000 per year per quarter.
Although businesses of all sizes can apply for the tax credit, the IRS treats them differently depending on the number of employees they’ve had on their payroll.
What Does a Partial Suspension of Business Operations Mean?
Partially suspended means that the business operations of a firm must be limited due to a governmental order. For example, a medical practice that had to restrict its waiting room due to a local government order but could continue to offer services to select patients is considered to have partially suspended operations.
Partial suspension can also occur if a business is asked to limit the number of hours it can stay open or some business operations have to be closed, preventing them from rendering their services.
What are Qualified Wages?
This raises an important question: what is the meaning of qualified wages?
In most cases, employee wages are very straightforward. They are wages that you pay to your employees. Depending on how the business is set up, benefits like health care costs may be included in the wages.
However, the ERC defines the wages differently since the tax credit is used to help you keep employees on your payroll. In other words, you can get a refund for wages you paid to employees who could not work due to government orders or a significant decline in your company’s recipes.
It is also worth noting that the rules for Qualified Wages are different from year to year. From 2019 to 2020, if your firm had over 100 employees, you can only claim qualifying wages paid to employees for time they did not work.
In 2021, if your business employed over 500 or more employees, you may only claim qualifying wages on retained employees who cannot work.
Businesses with fewer than 100 employees in 2019 and 2020 can claim the credit for all of their employees, regardless of whether they were working or not. And for 2021, you can do the same if your business employs fewer than 500 employees.
Applying for the IRS ERC for Businesses
To apply for the ERC, employers must file form 941-X and their quarterly federal tax return.
941-X is a form to update the information you could not add to Form 941 to claim ERTC. Many employers are not sure how to fill out this form.
Do Businesses Have to Pay Back ERC?
The good news is that you don’t have to pay back ERTC. Think of the tax credits as repayment by the government for incurring losses during the pandemic. If you think the government may surprise you later by asking for repayment, that won’t happen. Try to put in your claim because, if you qualify, you may receive a refund check.
Consider it your compensation for cooperating with the government and surviving COVID-19. You may also have seen a massive decline in your annual gross receipts due to the pandemic. The refund check will help you get back on track.
How Long Will It Take to Receive the ERC Refund?
The IRS has a massive backlog, and the average waiting time for processing each application is anywhere from 3 to 6 months. It takes a long time to receive your ERTC, but it’s worth waiting. The waiting period depends on several factors, such as the number of claims filed and their complexity. In any case, you should expect to wait at least six months to receive your refund.
Work with an ERTC Tax Credit Professional
The rules for ERC are constantly being updated, and the IRS has not given up making changes. This is why it is important to file as soon as you can to take advantage of the tax credits. Upcoming changes to ERC rules will decrease the tax credit that businesses can qualify for. If you’re unsure whether you qualify for the tax credit, you should hire a tax consultant.
A professional ERTC advisor will minimize your tax liability and help you make smarter choices. They will also ensure that you file form 941-X accurately and on time.
Federal Tax Credits ERC Works for Your Business
Have you had difficulties determining if your business qualifies for the Employee Retention Credit or Employee Retention Tax Credit?
Federal Tax Credits ERC is here to answer any of your questions, offer assistance, and even provide a complimentary ERC Qualification Check.
Our team of ERC Experts offers white glove service for tax filing, amending returns, determining eligibility, and how to file for the ERC program.
The time is now to get your Employee Retention Credit while the tax credits are still in place. The program is still available but won’t be around for too much longer.
Get the tax credit your business is entitled to and receive game-changing money back to be used for whatever you choose. Remember, this is not a loan and does not need to be paid back.
Contact Federal Tax Credits ERC now, and let us help you receive your business tax credits.