How Do I Apply For ERC Tax Credit?

The COVID-19 pandemic dramatically altered the corporate world. Many small and medium-sized business workers had to be laid off; as a result, the government launched several programs to help companies survive the current economic storm. One such government initiative is the Employee Retention Tax Credit (ERTC).

Even though the ERTC program has several advantages, the National Federation of Independent Business (NFIB) revealed that in 2020, just 8% of business owners adopted ERTC, and only 10% did so in 2021. With these stats in mind, the planned date for the retroactive period (1 January 2022) was pushed back to 1 October 2021.

However, did you know you may still be able to claim ERC for salaries earned up to and including 31 December 2021? Continue reading to learn how to apply and claim the ERC tax credit.

What is Employee Retention Tax Credit (ERTC)?

Business relief provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act include the ERC—payroll tax credit for wages paid from 13 March 2020 to 31 December 2020 to retain full-time employees. The ERC program aimed to incentivize companies to keep people on the payroll even if they were not working within the period covered by the law (COVID-19).

The ERC was further expanded with the Consolidated Appropriations Act and the American Rescue Plan Act, now available to qualified businesses that retained employees throughout the pandemic until 31 December 2021. In simple words, this is a tax credit that businesses can use to claim a refund on qualified wages, which may include certain health insurance premiums paid to employees.

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Coronavirus Aid, Relief, and Economic Security (CARES) Act – 2020:

In 2020, the CARES Act created the ERTC tax credit program. Employers that qualify, including first-time PPP users, may claim a credit equal to 50% of eligible wages paid between 13 March and 31 December 2020, up to a maximum of $10,000 per employee per year.

Consolidated Appropriations Act – 2021:

The credit may be used for up to 70% of eligible salaries earned by employers who meet the requirements, including PPP beneficiaries. Additionally, for the first two quarters of 2021, the pay level that qualifies for the credit has been increased to $10,000 per employee every quarter, up from the previous $5,000.

American Rescue Plan Act – 2021:

70% of qualifying salaries were eligible for the credit, up to a $10,000 cap every quarter, for $7,000 per employee or $28,000 for the whole year 2021. However, under the terms of this legislation, new enterprises established after 15 February 2020, and forced to close due to a government order, may be eligible for a credit of up to $50,000 each quarter.

Infrastructure and Investment Jobs Act:

This Act was signed on 15 November 2021, and the expiration date of the ERTC program was pushed back from December 2021 to September 2021. Recovery Startup Businesses are eligible to claim ERTC until the end of 2021, provided their gross revenues average $1 million or less yearly.

Employee Retention Tax Credit (ERTC) Eligibility Criteria

The Employee Retention Tax Credit is available to private firms or tax-exempt organizations actively traded between 2020 and 2021. There are no restrictions on the size of eligible businesses for the ERTC; however, small and big firms are handled differently.

  • All employee earnings qualify for the credit for businesses with 100 or fewer full-time workers, regardless of whether the employer is subject to a shutdown order or open for operation.
  • Qualified wages are given to workers when they cannot provide services due to COVID-19-related situations and are only applied to businesses with more than 100 full-time employees.

Private-sector firms and tax-exempt organizations that have experienced the following situations are eligible employers for the Employee Retention Tax Credit (ERTC).

  • During the COVID-19 pandemic, if a business had to fully or partially suspend their trade or business hours due to government orders, such as limiting meetings, travel, etc.
  • When comparing a calendar quarter in 2020 or 2021 to the same quarter in the previous year, the company has a gross revenue loss of more than 50%.
  • A “recovery startup” established after 15 February 2020, whose average yearly gross revenues do not exceed $1 million, subject to a quarterly ERTC ceiling of $50,000.

New Guidance on Claiming the Employee Retention Credit

Employee retention credit advice was updated on 4 August by the Internal Revenue Service, guiding companies who paid eligible wages after 30 June 2021 but before 1 January 2022.

Notice 2021-49 expands on previous advice on the employee retention credit offered in Notices 2021-20 and 2021-23. The new guideline covers adjustments to the employee retention credit imposed by the American Rescue Plan Act (ARPA), effective in the third and fourth quarters of 2021 and effective in the third and fourth quarters of 2020.

This includes the following modifications:

  • Including recovery startup businesses in the criteria of qualified employers.
  • Allowing firms who paid salaries between June 2021 and January 2022 to claim the credit.
  • Modifying the definition of eligible salaries for “severely financially challenged businesses.

How Do I Apply For ERC Tax Credit

How to Claim ERC Tax Credit

ERTC tax credits may be claimed by completing the following forms:

To claim the tax credit retrospectively, eligible companies must state their ERTC amount for a pay period and reduce the payroll deposit necessary by that desired amount. On the other hand, employers may minimize or get an advance on tax payments when submitting a claim in advance. If your company has less than 500 full-time workers, you may be eligible for an advance payment, but there are certain restrictions.

  • Advance payment should not exceed 70% of the employer’s average quarterly salary.
  • If the company did not exist in 2019, the 2020 quarterly average wage should be used.
  • The advanced ERTC and the original ERTC should have been reconciled.

Employee Retention Tax Credit (ERTC) Calculation

You must first decide during which quarters of 2020 and 2021 your firm is eligible for an ERTC fund. Is your firm operating at a loss of between 50 and 20 percent of its gross receipts? If your company was founded in 2020, you might use the quarters of 2020 and 2021 to calculate your tax credit.

The total qualifying salaries given to workers each quarter are the next step. Don’t include wages that have been applied to the PPP loan, but do include eligible health insurance expenditures.

You may apply a $10,000 maximum per employee, regardless of how many quarters they work. Afterward, divide the eligible salaries by the yearly ceiling and multiply by 50% to get the tax credit amount for 2020. Each employee is limited to a $5,000 credit limit.

To calculate your tax credit for 2021, take your qualifying salaries up to the quarterly ceiling and multiply them by 70%. This will give you a credit of $10,000 for each employee. Each employee is limited to a maximum credit of $7,000.

Takeaways for Claiming the ERTC

Businesses that qualify for the ERTC must submit their final Form 941 tax returns. The following are the actions suggested for businesses that may be able to claim the ERTC:

  • Determine as soon as possible whether the company’s personnel fulfill the ERTC requirements.
  • You should be able to locate all payroll data for the last several years.
  • Consult a business solutions provider like Skycutter Solutions for help if you cannot identify eligibility criteria or produce the requisite Form 941s.
  • Don’t wait until the last minute to get the paperwork together and submit it to the IRS. The sooner you file a claim, the sooner you will get the deserving tax credit. 

Are You Eligible For ERTC? Check Your Status Now!

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The Final Cut

Believe it or not, claiming the ERTC tax credit is not as easy as it seems. There is a lot of paperwork involved and eligibilities to meet. Therefore, joining hands with a competent CPA firm is your best bet. If your head is spinning trying to determine whether your company qualifies for the employee retention tax credit in 2022 or if you have any questions regarding submitting a retroactive or revised return, contact Skycutter Solutions.

ERTC @ Skycutter Solutions

With Skycutter Solutions, you may claim your ERTC tax credit in only five steps. Simply complete the questionnaire, submit supporting documentation, compute credit, file payroll returns, and wait for credit to be issued to you. On top of that, we can help you with your inquiries and concerns about the employer retention tax credit, the CARES Act, tax advice, and filing alternatives. So what are you waiting for? Get started now! Click here to sign up.

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