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The CARES Act’s Employee Retention Credit is a fully refundable tax credit. For the 2020 program, the ERC is equal to 50% of qualified wages that eligible employers pay their employees. This applies to wages paid after 3/12/2020 and before 1/1/2021. The maximum amount of wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an employee in 2020 is $5,000.
For the 2021 program, the credit is increased to 70% of the first $10,000 per quarter for the first 3 quarters of 2021. This means the annual maximum for an employee is 2021 is $21,000.
Eligible Employers for the purposes of the Employee Retention Credit are those that carry on a trade or business during calendar years 2020/2021, including a tax-exempt organization, that either:
The operation of a trade or business may be partially suspended if an appropriate governmental authority imposes restrictions upon the business operations by limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes). This can be a “Stay at Home Order” for non-essential businesses, a capacity restriction, or other possibilities.
Qualified wages are compensation provided to employees during an eligible period. An eligible period is either:
Yes, just not on the same employee wages. The government allows you to claim only one tax credit per eligible period. If you file with us, we use our methodology to separate PPP forgiven wages from ERC eligible wages. The good news is that different tax credits often cover different types of expenses and eligibility periods, so you’re still likely to get an ERC refund.
Yes! A decline in revenue is not required to qualify for the ERC. If you can show that your business was more than nominally (10%) impacted by COVID-related restrictions or disruptions, you will qualify under the Government Mandate Test.
Anything you want. It’s your money! Many business owners use the funds to pay off debt, invest in new equipment, hire more employees, take a vacation, or even get a head start on next year’s taxes.
The Employee Retention Credit has certain complexities that may impact receiving an accurate, optimized, and audit-ready number. It is important to fully document processes and procedures, organize your records, and avoid any risk areas in advance of a potential IRS audit of the claim, which may come years later.
The ERC has numerous issues such as Controlled Group criteria, documenting qualification methodology, coordination with PPP loans, allocating healthcare expenses to the appropriate time periods, etc. Your payroll company does not have all this information, and your CPA may not have the specific expertise to ask. Partnering with ERC Benefits can help prevent disaster and/or leaving money “on the table.”
Businesses can file retroactively for the 2020 credit until April 15, 2024, and for the 2021 credit until April 15, 2025.
Per recent IRS changes, claims received before 9/14/2023 have a processing time of 180 days. Claim applications received after 9/14/2023 will be held until the beginning of 2024 before they are reviewed and processed. Wait times could increase later on as the deadline to apply draws closer. We recommend submitting your ERC application as soon as possible to receive your refund in the timeliest manner.
The initial analysis to determine your eligibility and approximate credit is completely free. If you file for an ERC with us, our fee is a percentage of the credit to be received.
The CARES Act and employee retention credit are available to most businesses, except for federal, state, and local government entities.
Self-employed individuals may also be ineligible, although there are specific requirements that could potentially make you eligible to claim. It’s worth noting that tribal governments may qualify for support. As you navigate the application process, you’ll quickly discover what you’re eligible for and how we can be of help.
Employers have the option to claim the Employee Retention Credit on their federal employment tax returns, typically through the Quarterly Federal Tax Return (Form 941). If you initially overlooked the eligibility for the ERC, you can make amendments to your Form 941.
In cases where the credit exceeds your owed taxes, you can request an advance refund from the IRS. This provision is applicable to businesses with 500 or fewer full-time employees in 2019. To seek the advance, you will need to use Form 7200.
No, but it does have an impact on your income tax return. The advantages of receiving the credit far surpass its impact on your taxes. If you didn’t apply for ERC on your quarterly payroll tax returns for 2020 and 2021, there is still an opportunity to file.
The Employee Retention Credit is accessible to churches and other religious organizations affected by government-imposed limits on gatherings or those who faced substantial reductions in gross receipts. This credit provides support to such entities, acknowledging the challenges they’ve encountered due to capacity restrictions and financial downturns.
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