If you’re spending the time reading this, you’re probably an employer who has heard about the Employee Retention Credit (ERC), and you’ve probably done some checking on the Internet to see if you qualify and how to claim the credit. This article won’t concentrate on whether you qualify for the ERC, but on how to claim it if you do.
By way of summary, the Employee Retention Tax Credit is a stimulus program designed to help businesses that were able to retain their employees during the COVID-19 pandemic.
The credit applies to business conducted in 2020 and the first three quarters of 2021. Your business can receive a refundable tax credit – a grant of up to $26,000 per employee – with no limit on the total amount that can be refunded to you.
If that piqued your interest, you’re in the right place.
Search and you will find?
If you used your favorite search engine to learn how to claim the ERC, you probably clicked on the IRS website and were referred to Notice 2021-20 concerning the employee retention credit. And you were probably left scratching your head after reading the first paragraph, if not the first line, which reads:
“This notice provides guidance on the employee retention credit provided under section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. No. 116-136, 134 Stat. 281 (March 27, 2020), as amended by section 206 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), which was enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, 134 Stat. 1182 (December 27, 2020).”
It doesn’t get much clearer from there.
However, we’re about to bring it into focus for you.
Follow these steps to claim the ERC:
Step 1: Calculate the size of your ERC.
If you’ve deemed you’re eligible, you can claim a credit against what you typically pay in Social Security tax on up to 70% of the “qualified wages” paid out to employees during 2020 and the first three quarters of 2021.
If you have fewer than 500 employees, qualified wages are what you paid your full-time employees during the period there was a full or partial shutdown or a quarter in which you had a decline in gross receipts.
If you have more than 500 employees, qualified wages are defined as what you paid to employees who weren’t providing services during that period.
Qualified wages are limited to $10,000 per employee per quarter in 2021. With the credit being 70% of the $10,000 of qualified wages, the maximum credit available is $7,000 per employee per quarter.
Be aware that if your company took a Paycheck Protection Program (PPP) loan, you can’t claim the ERC for the same wages counted towards PPP forgiveness.
Step 2: File a claim for a retroactive refund.
Although the ERC ended at midnight on September 30, 2021, you can still file for a retroactive ERC by submitting IRS Form 941-X. This form is used to adjust employment taxes you filed within three years of the original return or two years from the date you paid the tax.
This means you could have as late as the end of 2024 to file Form 941-X if you didn’t initially claim your ERC, depending on when you originally filed or paid your business taxes.
Again, the ERC applies to the tax year 2020 and the first three quarters of 2021. However, it does not apply to Q4 2021 or the 2022 tax year.
Step 3: If in doubt, seek help.
There is potentially an immense credit with your company’s name on it if you follow procedure and calculate your refund amount accurately. However, if you don’t follow the tax code for this unique situation to the letter, you’ll essentially be losing free grant money from the federal government.
If you do your own corporate taxes, you may be tempted to calculate your credit and file Form 941-X on your own. Regardless of whether you use our ERC services or another firm’s, we advise against it.
If you’re on the fence, pick up IRS Notice 2021-20 again and this time, read it from cover to cover. If after doing this, you are fully confident you understand the ERC and won’t be leaving money on the table, calculate and file. If not, speak with our experts and make sure you get everything you are entitled to. Click here to claim the ERC credit today.
