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The CARES Act established the Employee Retention Credit (ERC) in 2020 as a fully refundable credit against payroll taxes to assist companies who continued to pay their employees during the Covid-19 pandemic during 2020 and 2021. The tax credit is still available for eligible companies until the ERTC deadline of April 15, 2025. Both for-profit and nonprofit companies can qualify, regardless of whether they were profitable, stayed open during the pandemic, or received assistance from PPP funds. How Does the ERC Tax Credit Work? The Employee Retention Credit (ERC) is a refundable tax credit against money paid to the IRS for payroll taxes. Companies claim the credit by amending payroll tax returns filed for tax years 2020 and 2021. The ERC refund can equate to as much as $5,000 for each employee on the company payroll in 2020 and up to $21,000 per employee on the payroll for the tax year 2021. Who Qualifies for the ERC? Any company with employees on its payroll in 2020 or 2021 that experienced adverse financial effects from the pandemic, such as partial or complete shutdowns due to government orders. The effects include revenue declines due to prohibitions on commerce, group meetings, or travel. Companies are included in the eligibility even if the only effect they experienced was a significant decline in revenues compared to 2019 gross receipts due to limitations brought on by the pandemic. Can a Business Still Get the ERC After Receiving PPP Funds? Originally the CARES Act had certain eligibility limits for the ERC if employers had taken a PPP loan. However, the provision was repealed by the Taxpayer Certainty and Disaster Relief Act of 2020. Consequently, a business that received PPP funds can also receive the ERC credit. However, any wages paid with funds from a PPP loan do not count as wages that qualify for the tax credit. How To Apply for Employee Retention Credit? To apply for ERC refunds, companies must amend their payroll tax filings using IRS form 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund). This form is used to make retroactive changes to quarterly payroll tax filings. The IRS requires additional paperwork to calculate and complete the filing process. The amended form is completed for each quarter in which the company meets the eligibility requirements for the credit. Is the ERC Only for Full-Time Employees? Employers can include wages paid to both full-and part-time employees in their ERC calculation. The only limiting factor is that the credits consider only the first $10,000 paid to each employee and any health care costs paid to them during each period of credit calculation. Does the ERC Have to be Paid Back? The ERC stimulus money is not a loan; it's a refundable tax credit claimed against payroll taxes paid by eligible employers. It does not require any repayment. In many cases, the refund amount exceeds the payroll taxes paid in each credit-generating period. How Does the IRS Determine If an Employer is a Large or Small Employer for the ERC? For the tax credit in 2020, employers with 100 full-time employees or fewer, on average, meet the definition of a small employer. The measurement applies to the number of employees in 2019, and the IRS did not set any minimum number of required employees. For the ERC in 2021, The number of employees for small employers was increased to 500, as measured by employees on the payroll in 2019. The IRS defines full-time employees as those who work an average of 30 hours or more per week or 130 hours per month. A business determines its average number of employees in 2019 by adding the number of employees classified as full-time in each calendar month, then dividing by 12. Ensure Your ERC Application Doesn’t Get Held Up Navigating the guidelines to figure out your company’s qualifying gross receipts, wages, and other details can quickly become complex. Answering the question, “Do I qualify for the ERC?” isn’t always straightforward. Make sure that your company receives the tax credit it deserves. Hire a team of experts with a depth of experience dealing with many complex situations and have stayed up to speed on IRS clarifications and guidance changes regarding the ERC. To ensure that your ERC claim is completed correctly and filed promptly, don’t hesitate to call us for assistance. The IRS has become bogged down with ERC applications, and it could take up to 12 months for approval. Call us today, and we will get your claim filed as soon as possible.
The CARES Act of 2020 established the employee retention credit (ERC or ERTC) to provide businesses with much-needed relief from the financial hardships of the COVID-19 pandemic. For various reasons, many companies did not file for the credit on their 2021 and 2022 tax returns. The Infrastructure Investment and Jobs Act (IIJA) retroactively ended the ERC program as of September 30, 2021, for all businesses (excluding recovery startup businesses, which remain eligible through December 2021). However, the IRS still has funds for this credit and allows companies to amend their tax returns and claim the ERC retroactively. Following are some common employee retention credit FAQs and additional information about the credit that is still available for a limited time. Can Companies Can Still Apply for the Employee Retention Credit? The ERC stimulus funds are still available, and small and mid-size businesses should apply. The IRS has an imposed statute of limitations, driven by the three-year window in which it allows amendments for previously filed tax returns. To amend a return filed for the 2020 tax year, companies have until April 15, 2024. To file an amended return for ERC refunds for the tax year 2021 is April 15, 2025. For many companies filing for ERC credit, the ERC refunds exceed the payroll taxes paid by employers. The tax credit amount may also exceed the amount of money a company receives from a PPP loan. How Long Does It Take for the IRS to Provide a Refund After Filing an Amended Form 941X? Generally speaking, the IRS ERC processing time takes about nine months to get the amended return reviewed and provide ERC refunds. Form 941 is the IRS form that employers file each quarter to report the various taxes withheld from employee paychecks. To receive the ERTC tax credit, companies must go through the steps to complete their application and then file an amended payroll tax return using form 941X. Can a Business Accept Money from Both the ERC and PPP Loans? If a company received a PPP loan, it was allowed to use that money for other business expenses aside from payroll costs. Any PPP money used to fund wages must be excluded from the ERC wage calculation when applying for the ERC. However, the PPP funds only applied to wages paid out over an eight to 10-week period, so the impact could be minimal. An application for the ERC stimulus requires documentation of wages paid, among other information. The company’s work paper support can show the PPP funds allocated across the 24 weeks covered by the ERC. Additionally, wages for owners of the company or wages paid in excess of $10,000 per employee in any single credit-generating period can be allocated to PPP since these wages would not have generated any ERC credit, to begin with. If a Business Uses a PEO Instead of a Traditional Payroll Tax Provider, Can It Still Claim the ERC? Some companies outsource their payroll function to a PEO (Professional Employer Organization). This full-service business typically handles all of a company’s payroll and benefits administration. Regardless of who does the work of filing a company’s payroll tax returns, the company is still entitled to amend its 941 payroll tax filings and receive its retroactive ERC credit. Can Churches and Other Religious Organizations Qualify for the ERC? During the pandemic, churches and other religious organizations were under a government mandate to maintain certain restrictions on capacity. This restriction on gatherings and other effects of the pandemic most likely caused a significant qualifier for ERC revenue reduction or decline in gross receipts, making these organizations eligible for ERC refunds. What are Considered Gross Receipts for the ERTC Tax Credit? For the ERTC application, gross receipts fall into the following categories, which differ for taxable vs. non-taxable entities. Gross Receipts for Taxable Entities: Total sales for goods and services, net of returns and allowances Income from investments (rents, interest, dividends) Business income from annuities or royalties (regardless of whether the income stems from the company’s core trade or business) Forgiven PPP loans are not considered gross receipts for the ERC calculation Note: Income recognition is based on the tax accounting method. Gross receipts will be reduced by the business taxpayer’s adjusted basis for certain business property or sales of capital assets. Gross Receipts for Non-Taxable Entities: Includes all gross receipts for the given tax year, which generally includes all the non-taxable entity’s receipts Any proceeds from grants and investments Note: Income recognition is based on the tax accounting method. Gross receipts will NOT be reduced by the business taxpayer’s adjusted basis for certain business property or sales of capital assets. What Are ERC Qualified Wages? Generally speaking, the ERC credit report amount is calculated based on the amount of qualified wages a company paid that were subjected to FICA or group health care expenses. These wages must have been paid during the calendar quarters when the company suspended business or suffered a significant ERC revenue reduction. Some payments made for healthcare expenses also qualify. The IRS has additional detail on the specifics of what it considers to be qualifying wages. Calculate Your Credit Correctly to Ensure You Get Your ERC Funds Calculating the qualified wages and other relevant details can be daunting, especially if your business has any gray areas, such as 1099 staff or employees operating outside of the U.S. during the pandemic. To ensure that your company receives the ERC money it’s qualified for, you need to consult with experts who have prepared hundreds of ERC applications, seen a myriad of different scenarios, and kept up to date on the latest IRS changes and clarifications. To get your ERC claim filed correctly and efficiently, don’t wait. The IRS could take up to one year to process your application. Get started now and contact us today.
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