There are ERC funding options available that allow businesses to get their Employee Retention Credit. Take advantage of the refundable tax credit based on payroll costs. Most businesses can get refunds from filing these benefits. This is not a loan but a tax credit based on qualified wages giving businesses tens, if not hundreds of thousands of dollars. It is important to claim yours while it’s still available.
What is ERC: A Short Review of Employee Retention Credit
Congress passed the Employee Retention Credit to help businesses affected by the pandemic. The ERC provides tax credits to eligible firms for wages paid to employees. Its goal was to encourage businesses to keep their employees on the payroll despite losses incurred due to the pandemic.
Employers can claim up to 50% of qualified wages, including health insurance expenses. The ERC was expanded in 2021 by the Consolidated Appropriations Act (CAA) and allowed businesses to claim a credit of up to 70% in qualified wages.
The ERC program came to completion when the Infrastructure Investment and Jobs Act was signed into law in November 2021. This was done because the pandemic no longer disrupted normal business operations.
Businesses can still claim tax credits for up to three years. The deadline for qualified wages paid in 2020 is April 15, 2025, while the deadline for all qualified wages paid in 2021 is April 15, 2025. Note that recovery startup businesses had a January 1, 2022, deadline under the Infrastructure Investment and Jobs Act.
The IRS is in the process of making a few modifications that will reduce the ERC credit amount. This is why it is extremely important for eligible employers to request ERC credits before the IRS slashes the tax credit.
Explaining the Eligibility Requirements for ERC
What makes your firm eligible for ERC? Simply put, businesses need only meet one of the criteria to qualify for the program:
- Having faced partial or full shutdowns under a government-mandated order.
- Having experienced a revenue decline of 50% or more in 2020 compared to 2019. This changed to a 20% decrease from a quarter in 2021 compared to the same quarter in 2019.
- Supply chain issues
If your company is considered to be an essential business, you may be considered to have a partial suspension of operations if more than a nominal portion of your operations were suspended under a governmental order.
The term ‘nominal portion’ means that gross receipts of that portion of your business operations are 10% or more of your total gross receipts. The hours of service performed by employees in that portion of the business is at least 10% of the total hours worked by all employees throughout the company. This can be determined using the number of hours performed by employees in the 2019 calendar quarter.
If you want to learn more, have any questions, or want to fill out a complimentary pre-qualification check, reach out to us today by completing this ERC funding application.
What are Qualified Wages?
When researching Employee Retention Credit, you will often come across the term ‘qualified wages’. There is a large interindividual variability on what constitutes qualified wages, and it largely depends on the size of the business and how many employees are on the payroll. Although there is no size limit for firms to be eligible for the ERC, the IRS treats companies depending on their size.
For example, if you had over 100 employees on your payroll in 2019, you may be able to claim the wages of employees who were retained but didn’t work in 2020. If you had fewer than 100 employees, you could claim wages on all staff members, regardless of whether they were working or not.
The threshold for 2021 was increased to 500 full-time employees in 2019. This was done to give employees more wiggle room in claiming the credit. The only catch is that the wages must have been paid between March 13, 2020, to September 30, 2021.
Claiming ERC Funding
Businesses can claim the tax credit by filling out Form 941. It is worth mentioning that some employers who received a Paycheck Protection Program Loan in 2020 felt that they were ineligible for ERC. You can fill out Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return) if you have already filed your tax returns but now believe you qualify for ERC.
According to the IRS, businesses have until three years from the day they submitted their first return or two years from the date they made payments to file an updated federal hiring tax return. So for now the latest a business can amend their filings is April 2025, but that depends on the quarter. Unlike traditional tax credits, the refundable credit is equal to cash.
How to Calculate the Qualifying ERC Amount
Below are two simple equations to help you calculate the ERC.
ERC for 2020 = 50% of 2020 qualified wages
ERC for 2021 = 70% of 2021 qualified wages
The maximum credit amount for the year 2021 is $10,000 in one quarter. Moreover, any wages used for PPP loan forgiveness are not eligible.
How Long Does It Take to Receive a Refund After Filling the Amended Form?
Due to the ERC, the IRS is currently sifting through a massive backlog of amended 941 returns. For this reason, it is common for businesses to have to wait anywhere from 3-6 months to receive a refund after filing Form 941 X.
What are my Funding Options?
The refundable tax credits are taken against the employer’s share of taxes already paid. Employers can also opt to retain the value of employment taxes up to the amount of the ERTC instead of depositing it without receiving any penalty.
Although the ERC appears to be relatively straightforward on the surface, it may be complicated for small businesses. The ERC is a powerful tool to help struggling businesses reduce their tax burden. The opportunity is too good to pass up if you believe your company is eligible. You should speak with an ERC specialist to make sure the process is done correctly.
Federal Tax Credits FTCO can help you determine how many credits you can receive and how much tax credit you could claim from the IRS.
If you want to learn more, have any questions, or want to fill out a complimentary pre-qualification check, complete this simple form today.
We wish you all the best in getting the largest tax credit your company deserves.
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