If your business was adversely affected by the pandemic in 2020 and/or 2021, you might be familiar with the Employee Retention Credit (ERC). This dollar-for-dollar tax credit, not to be confused with a tax deduction, was part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and became law in March 2020.
If you’re not familiar with the ERC, don’t feel alone. According to the National Federation of Independent Business (NFIB), only 4% of small business owners are familiar with the ERC program. In addition, only 8% of owners filed for the ERC in 2020 and only 10% in 2021.
The ERC Deadline
The ERC deadline is March 12, 2023. You have three years from then to look back at wages you paid out between March 12, 2020, and September 30, 2021 (December 31, 2021, if you’re a qualified “recovery startup business”).
Filing for the ERC in 2022 and 2023
Don’t despair if you’re just learning about the ERC and haven’t filed yet; you may be able to file retroactively by submitting an Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund (IRS Form 941-X). There is a three-year deadline to submit this form from your original filing date.
For example, if you paid quarterly payroll taxes for the second quarter of 2021 on April 30, 2021, you would have three years from that date to file Form 941-X for a retroactive ERC refund.
Qualifying for the ERC
If we’ve whetted your appetite with this information, you might be wondering if your business is even eligible for the ERC. That’s a simple question with a very complex answer.
Here are just some of the guidelines:
- Eligibility is based on 2019 records
- You must have had 500 or fewer employees in 2019
- Your gross receipts in 2020 or 2021 must be at least 20% lower per quarter than the same quarter in 2019
- Your business must have experienced a full or partial shutdown because of government limitations during COVID-19
- Your business must be in the private sector or be a tax-exempt organization
- The credit can be claimed in 2022
- You have three years after the program ends (March 12, 2023) to look back at wages paid each quarter between March 12, 2020, and September 30, 2021
- You are still eligible to file for the ERC if you received a PPO loan (certain restrictions apply)
This list is not comprehensive concerning qualification for the ERC.
IRS Notice 2021-49
If you weren’t perplexed enough, we must tell you about IRS Notice 2021-49.
The notice is lengthy and full of “IRS-speak,” but it clarifies some questions that the Treasury Department and IRS have been fielding concerning ERC credits in 2020 and 2021, including:
The definition of full-time employees and full-time equivalents
The treatment of wages paid to majority owners and spouses
Timing of the qualified wage deduction disallowance
How to treat tips under qualified wages
We don’t expect you to read this notice, so let one of our ERC experts address it (and other critical information) in a free call.
Let Bottom Line Concepts Help
Contact us today and schedule your free 15-minute phone call to determine your business’s eligibility. We can help apply the aggregation rules to your business, interpret state executive orders, and more.