In this article, we discuss:
because of that covid-19 pandemic, the US federal government created the Employee Retention Tax Credit (ERTC). The Employee Retention Credit is intended to be a refundable tax credit to help businesses with the cost of keeping employees employed during COVID-19 or businesses that experience a large drop in revenue from March 13, 2020 to December 31, 2021. Had to provide The ERTC was created from the CARES Act of March 2020 and has since been amended three times as part of the Relief Act of 2021, the American Rescue Plan Act of 2021, and the Infrastructure Investment and Jobs Act (IIJA). This article explores where to file your ERTC to claim the Internal Revenue Service (IRS) credit for which your business may still be eligible. However, there are several qualifications you should be aware of before you file.
Where to File Your ERTC to Claim the IRS Credit
IIJA abolished the ERTC (also known simply as ERC – employee retention credit) and it is no longer an active government program. However, if your business did not originally claim the ERTC while the program was active, you may still retroactively file an adjusted quarterly federal tax return for wages paid from March 13, 2020 through September 30, 2021. can enter. specially designated recovery startup business May retroactively file an adjusted quarterly federal tax return for wages paid through December 31, 2021.
To claim ERTC for the quarters prior to 2020 and 2021, you must:
Deadline to File for Claiming Your ERTC
there are Deadline to File Form 941-X Based on the date you initially filed your Form 941. The IRS typically allows businesses to correct a Form 941 that has already been filed if they file Form 941-X within 3 years of the filing date. This period is called the “period of limitations,” and Form 941 is considered filed on April 15 of the following year if filed before that date.
For example, if your business filed Form 941 for the fourth quarter of 2019 on January 9, 2020, and the payment was made on time. The IRS is of the view that the return was filed on April 15, 2020. Then you find out that you reported more than $500 in Social Security and Medicare wages on that form on March 5, 2023. To correct the error, you must file Form 941-X before the due date of April 18, 2023 (Tax Day 2023), which is the end of the statute of limitations for Form 941 and the last chance to use the claim process. Is.
Based on the IRS period of limitations for Form 941:
- You can submit Form 941-X before the due date of April 18, 2023 for any Form 941 submitted before April 15, 2020
- You can submit Form 941-X before the due date of April 15, 2024, for any Form 941 submitted before April 18, 2021.
Useful information to know before filing your ERTC
Before filing Form 941-X, here are some important things to know:
You must file multiple Forms 941-X: Small businesses will need to use a separate Form 941-X for each Form 941 they are substituting. For example, if you have eligible wages that retroactively qualify for the ERTC on your Form 941 for the third and fourth quarters of 2020, a Form 941 to correct the Form 941 for the third quarter of 2020 File Form 941-X and file another Form 941-X. Correct Form 941 for the fourth quarter of 2020. In other words, you’ll need an amended return for each Form 941 you filed that contains qualifying wages.
percentage of wages eligible for the credit,
- For calendar quarters in 2020, 50% of eligible salary (including certain health care expenses up to $10,000 per employee year)
- For calendar quarters in 2020, if your business had 100 or fewer average full-time employees (not part-time employees) in 2019, wages paid to employees providing services and not providing services Salary is considered eligible.
- For calendar quarters in 2020, if your business had more than 100 average full-time employees in 2019, wages paid to employees who do not provide services are considered qualified wages.
- For the first three calendar quarters in 2021, 70% of eligible wages ($10,000 per employee per calendar quarter including certain health care expenses)
- For calendar quarters in 2021, if your business had 500 or fewer average full-time employees in 2019, wages paid to employees who are providing services and not providing services are considered qualified wages
- For calendar quarters in 2021, if your business had more than 500 average full-time employees in 2019, wages paid to employees who don’t provide services are considered qualified wages
For more information about the percentage of eligible wages that are eligible for the credit, visit the IRS’s information page titled Employee Retention Credit – 2020 vs. 2021 Comparison Chart,
- For each employee in 2020, the maximum amount of the credit is $5,000
- For each employee in 2021, the maximum amount of the credit is $7,000
- “Recovery Startup Businesses” limited to $50,000 credits per calendar quarter
Employment Tax Offset:
- For calendar quarters in 2020, the business share of the Social Security tax
- For calendar quarters in 2021, changed to the business portion of the Medicare tax
Based on this information, if you had eligible wages during 2020 and 2021, it makes a lot of sense for your business to follow the ERTC. The ERTC can be a generous tax credit for a lot of businesses that can help with operations.
Let us review the ERTC eligibility:
Period for payment of eligible wages: Payment of eligible salary after March 12, 2020 and before October 1, 2021. If your business is a recovery startup businessThe employee retention credit has been expanded to include wages paid after September 30, 2021 and before January 1, 2022.
qualified employer: For calendar quarters in 2020, eligible businesses must operate a trade, business, or tax-exempt organization, but not governments, agencies, and instrumentalities. The Relief Act of 2021, for calendar quarters in 2021, expanded eligibility to include certain government employers that are organizations described in section 501(c)(1) of the Internal Revenue Code and organizations described in section 501(a) of the Internal Revenue Code are exempt from tax under the Revenue Code, and colleges or universities whose main purpose is to provide medical or hospital care.
- For calendar quarters in 2020, businesses must have had a full or partial suspension of operations during any quarter due to a government order or a significant drop in revenue (where revenue is less than 50% of the same quarter in 2019) due to COVID-19 . , but are not eligible if their revenue in the next calendar quarter increases by more than 80% compared to the same calendar quarter in 2019).
- For calendar quarters in 2021, the revised decline in revenue will be defined as a quarter where gross receipts are less than 80% of the same quarter in 2019.
- For additional information about revenue requirements, visit IRS Employee Retention Credit – 2020 vs. 2021 Comparison Chart Web page and scroll down to the Eligibility Requirements section.
Paycheck Protection Program, For any quarter in 2020 or 2021, a business cannot claim ERTC that was reported as a payroll cost in receiving PPP loan forgiveness or that was used to claim certain other tax credits . Since businesses have up to $10,000 in eligible wages per employee, you can still get an ERTC even if you previously took advantage of a PPP loan or PPP loan forgiveness.
Families First Coronavirus Response Act: The FFCRA is a law that requires certain businesses to provide their employees with paid sick leave, extended family leave, and extended medical leave for certain reasons related to COVID-19. The FFCRA was signed into law on March 18, 2020. However, wages eligible for the ERTC do not include any wages taken into account for purposes of the credit under section 7001 or 7003 of the FFCRA. Sections 7001 and 7003 describe the amounts of qualified sick leave wages and qualified family wages for purposes of the employer payroll tax credit for sick leave and paid family leave, respectively.
Self employed, Income from self-employed persons is not considered eligible for ERTC. However, if a self-employed person employs other people and the earnings of those employees meet the requirements listed above, they are qualified wages that are eligible for the ERTC.
How to get advance payment on your ERTC credit
While the ERTC was still active, eligible businesses could file IRS Form 7200 to request advance payment of their ERTC. Although the last day to file form 7200Due to COVID-19, the advance payment of the employer credit was January 31, 2022. remains on Form 7200 IRS.gov website but it is now classified as a historical object.
Many businesses are facing long delays waiting for the IRS to process their Form 941-X. according to a Treasury Inspector General’s Report for Tax Administration, there are substantial delays in the processing of revised Form 941 filed by businesses, resulting in businesses not receiving the timely immediate financial relief for which this law was enacted. As of February 1, 2022, there were 447,435 Form 941-Xs waiting to be processed. More than 90 percent (402,814) of these Forms 941-X were out-of-date, that is, have not been processed within 45 calendar days. In addition, 60,885 (13.6 percent) of Form 941-X were not processed within 180 calendar days.
The Treasury Inspector General’s report highlights long delays in processing the IRS’s Form 941-X and waiting for business taxpayers to fulfill their promises of refunds. However, businesses don’t have to wait for the IRS to process this massive backlog and finally receive them. Businesses can turn to online lenders offering ERTC loan And in some cases get the money within 72 hours. An ERTC loan gives business owners access to pending tax credits while they wait on the IRS to process their request. Each lender will have different eligibility requirements for their ERTC loan products, but to give you an idea of what you may face:
- Your business must be operational since at least February 2020
- 660 credit score or above
- Pending IRS credit of $100K or more
- Loan amount from 65% of the IRS credit
- Pay only interest for a fixed period
ERTC loans can make a lot of sense as compared to other small business financing alternative. The window to take advantage of the ERTC will eventually close, so this may be a good time to review your finances to see if you qualify.
Businesses that did not originally claim their ERTC are still eligible to receive it on eligible wages paid from March 13, 2020, to September 30, 2021 (recovery startup businesses have up to December 31, 2021) . Businesses must file an amended tax return via Form 941-X and file before the period of limitations (within 3 years from the date Form 941 was filed). The ERTC credit may be attractive to some businesses and is worth pursuing.