Employee Retention Tax Credit: All You Need To Know

Introduced as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act in March of 2020, the Employee Retention Tax Credit (ERTC) or Employee Retention Credit is a reward system that benefits companies that decided to not layoff employees despite the economic hardships they faced during the COVID-19 pandemic.

A company may receive a tax refund of up to $26,000 thanks to the Employee Retention Credit (ERC), which can be applied to every single employee individually. Even though the program has been discontinued, businesses may still submit old applications for this credit. While the window for filing is open until 2024, a firm must have paid wages to employees between the middle of March 2020 and the end of September or December 2021 for some organizations to be eligible.

Although it seems pretty straightforward,many businesses still find it difficult to understand what the ERC is, what the relevant guidelines are, and exactly what the criteria for eligibility are. Here’s everything that you need to know about the ERC:

What is The ERC or ERTC?

First of all, these are both names for the same provision and are used interchangeably, so don’t get confused by the fact that they may be different. That being said, here are some of the fundamental details that explain what the ERC is and what it does:

• The Coronavirus Aid, Relief, and Economic Security or CARES Act, which was approved on March 27, 2020, contained the ERC.
• Despite the deadline that has already passed, there is still time to submit an application for the Employee Retention Tax Credit in 2022 and possibly even by 2025 in a few instances.
• In accordance with this tax credit program, businesses may submit applications for refunds on particular wages that match the requirements and were distributed from the beginning of 2020 till the first nine months of 2021.
• Businesses may be eligible for reimbursement up to $26,000 for every staff member under the program, depending on their eligibility.
• Although there may not be a financing cap, only companies with decreasing earnings or those substantially hit by a COVID-related occurrence directly were eligible for this program.

It is best to get in touch with a qualified and reliable tax professional to ascertain whether your business meets the requirements and is still eligible to apply for the credit.

The ERC Look Back Period Rule:

If a corporation paid wages within a certain time frame, it might be eligible for a tax rebate under the ERC. Furthermore, the ERC Look back Period Rule continues to allow filing even though the time limit has long since expired.

By submitting returns before the 2024 tax filing deadline, businesses can now look back at their paychecks from 2020 and 2021 and claim the benefit retroactively. After 2025, the possibility might be accessible in only a few limited cases.

The taxpayers must apply by submitting an updated 941-X form for each applicable quarterly period. Information on the acceptable salaries paid by a qualified employer for the applicable period is requested on this form, which is also known as the Adjusted Employer’s Quarterly Federal Tax Return.

Businesses may search a bit more about the program in the IRS Notice 2021-20, which offers everything they need to know about ERC, especially the problem of applying for tax credits granted under the program in the past.

Process of Filing for Reimbursements Pertinent to the ERC:

Although, even for eligible employers, the deadline for ERC has passed, the chance to apply for a rebate is still open for some. It is best to research and consult a professional before proceeding any further. Still, the following are the details of how a company can file for relief under this provision now:

• In-depth FAQs on several aspects of the ERC program are included in the Internal Revenue Service (IRS) Notification that was mentioned earlier.
• It also gives guidelines for every unique situation, such as how to fill out the 941-X and how companies can determine which pay pages are qualified for the initiative’s tax benefit.
• Despite the fact that it is not a condition of the program, employers who received Paycheck Protection Program (PPP) money from the government are qualified for the tax credit under ETC.
• The IRS typically adds the minimum wage price to an employer’s permitted expenses when making calculations.
• Therefore, a business can only work out relevant and eligible relief with the ERC-determined salaries that were a part of the payroll expenses included in the documentation you submitted. Also, this can only be done if the costs were excessive compared to the advantages of PPP loan forgiveness.
• Furthermore, the IRS clarifies that it will stop considering any qualified expenses not included in the request.

So, if you haven’t already done so, carefully evaluate your tax credit application with assistance from an ERC counselor.

Requirements for Qualifying Under the ERC Program:

The American Rescue Plan Act, which Congress enacted, may qualify a wide range of organizations for the tax credit, such as educational institutions, hospitals, and 501(c) corporations. According to more detailed criteria, there are three main factors that can determine the likelihood that an employer is eligible for ERC reimbursements. These include:

1. Businesses Order by the Administration to Shutter Operations

Any business that had to completely or partially suspend operations because of governmental regulations is qualified for the ERC. Even businesses that had to reduce their employee hours may qualify, though only for the portion of the quarter during which business needed to be paused.

A few businesses were left out, especially those who shut down their physical locations but carried on with their vital tasks remotely provided their ability to obtain basic supplies was negatively impacted, making it virtually impossible for these companies to continue operating.

2. Companies for Which Gross Receipts Decreased

If, even after receiving the Shuttered Venue Operators grant, the Restaurant Revitalization Fund, and the PPP debt forgiveness, the gross revenue of a business dropped significantly, they are eligible for relief under the ERC.

3. Startups

Only for the last two quarters of 2021, startup ventures that fall under certain criteria also qualified for rebate under the ERC.

Conclusion:

The normal deadline for applying under the ERC has passed, but some businesses are still eligible. Even though this guide gives a run-down of things you should know, it is best to check with a professional tax consultant whether the window is still open for your business.