The last three years have been challenging for everyone. Due to the COVID-19 pandemic, many individuals have suffered personal and financial hardships, as have many businesses. Just about everyone and every business has in some way been affected.
To help everyone, people and companies, the United States federal government stepped in and provided financial resources to many businesses under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020.
Understanding the CARES Act
The CARES Act is the most extensive financial rescue package in U.S. history at about $2 trillion. It can be broken into seven major areas:
- Benefits for individuals
- Unemployment assistance
- Small business relief
- Big and medium-sized business relief
- Hospital and healthcare assistance
- State and local government
- Tax breaks and credits
This article will focus on number seven, tax breaks and credits, particularly the Employee Retention Credit (ERC)
The ERC Cares Act
The ERC program is a refundable tax credit of up to $5,000 per employee and covers all of 2020. For 2021, the program was expanded and provided up to a $7,000 credit per employee per quarter for the first three quarters of 2021. This brings the total possible credit to $26,000 per employee under the ERC Cares Act.
Originally under the CARES Act, businesses that received a PPP (Payroll Protection Loan), also part of the CARES Act, were ineligible for the ERC. However, the Consolidated Appropriations Act of 2021 amended that, and businesses that received a PPP loan may also apply for the ERC retroactively to 2020.
The ERC was not widely used until March 2021, when the IRS updated its regulations and made the ERC more accessible. Because of the update, thousands of businesses that once picked between the PPP and ERC can now possibly use both stimulus programs by amending their quarterly payroll returns (Form 941-X).
Deadlines for Claiming the ERC
There are several deadlines for employers who want to claim ERC funds:
- Eligible employers that want to claim ERC funds for any quarter of 2020 must submit their Form 941-X by April 15, 2024. The maximum credit for 2020 is $5,000 per employee.
- Eligible employers that want to claim ERC funds for Q1, Q2, or Q3 of 2021 must submit their Form 941-X by April 15, 2025. The maximum credit for each quarter of 2021 is $7,000, with a total maximum credit in 2021 of $21,000 per employee.
To qualify as an eligible employer, you must be able to prove that your business was negatively impacted in one or more of the following ways:
- Your business experienced a partial or total shutdown due to a government order during 2020 or 2021, including being limited by commerce, inability to travel, or restricted group meetings.
- A qualifying reduction in gross receipts, for which a business may be eligible to receive ERC funds for one quarter and not another.
If you have questions concerning the ERC and your company’s eligibility, contact our ERC experts at Bottom Line Concepts. We can help you obtain the funds you are legally entitled to receive, and we professionally handle your claim from start to finish. Schedule your 15-minute free consultation today.