The Employee Retention Tax Credit, often referred to as ERTC or ERC, was part of the CARES Act of 2020. It offered companies a refundable employment tax credit to help them cover the cost of keeping workers employed. The rules for the tax credit changed several times, as did the end date for the program itself.
While the program ended at the end of November 2020, companies can still take advantage of it. This is because the law allows a three-year window to file Form 941-X, which is a correction of any previously submitted Form 941. There are a couple of periods of limitations to keep in mind for submitting corrected 941-Xs:
- Three years from the date of the original Form 941 filing.
- Two years from the date the taxes reported on Form 941 were paid.
Frequently Asked ERC Questions
The ERC is undoubtedly a bit confusing to deal with, and the multiple changes within the law have not made things any easier. Here are some of the top questions we hear about what the ERS is, how it works and how to apply for it:
I didn’t qualify for the ERC before, why check again?
There have been changes to the law that allow people to qualify even if they did not previously. For instance, if you checked before the law changed, and you received a Paycheck Protection Program (PPP) loan, you may have not qualified. Now, however, you can qualify even if you received a PPP loan and forgiveness. This is why it’s so important to check again, even if you did not qualify before.
Can I take advantage of the ERC if I use a PEO?
Yes! The law is written to accommodate companies that utilize a PEO. So if you use a PEO to handle payroll and other administrative tasks, you can still get the ERC if you are otherwise eligible.
My business wasn’t shut down, can I get ERC?
You didn’t need to be completely closed in order to qualify. If you partially suspended operations, that can still count. Generally, companies that fall into one of the following groups during 2020 and/or 2021 are most likely eligible for the tax credit:
- You experienced a full or partial suspension of operations because of government orders related to COVID-19. In this case, the tax credit applies only to the period of time the suspension was experienced.
- You experienced a significant decline in gross receipts during the calendar quarter. For the purposes of the tax credit, “significant decline” is defined as a 20% reduction of revenue as compared to the same quarter in 2019.
Our employees worked from home, does that count?
Working from home is not enough by itself to make your company eligible for ERC, but that doesn’t mean you may not qualify otherwise. In this situation, you may qualify due to a reduction of revenue. For this reason, you may want to have a professional help determine eligibility and help with the calculations.
My business is an essential business, can I still qualify for ERC?
Yes, essential businesses are allowed to claim the ERC if they are otherwise eligible. For example, restaurants, which are considered an essential business, can receive the tax credit under the right circumstances.
Is this like the PPP and how do I apply for it?
This isn’t the same as PPP for several reasons. The ERC is not a loan and there is no limit on funding. It is a federal payroll tax credit that you can claim, if eligible. You also do not need to track expenses or use your ERC money in any particular way. ERC funds are yours and you can use them as you see fit.
There is no application for ERC. You have to simply verify you qualify and calculate the credit. Companies then claim the credit by reducing required payroll tax deposits on social security, medical and federal taxes. If you’re claiming it against already paid taxes, you have to file an amended 941-x and would receive the amount back from the IRS.
When would I get the money?
We all know that the IRS can be quite slow, and timelines are not easy to predict. However, we generally tell clients that it may take up to 9 months, so it’s a good idea to start the process as soon as possible.
I have multiple businesses, could I still be eligible for ERC?
We aggregate your business based on ownership to determine eligibility. If you’re eligible, all businesses are eligible. It is a good idea to have a professional help you though, as this is a more complicated situation.
I’m self-employed, can I get ERC?
Self-employed individuals cannot take the tax credit for their own earnings, but they may be able to claim it for wages they paid to employees.
The ERC can be worth a significant amount of money, even for small companies. For example, a 10-person company could be eligible for up to $26K per employee, totaling up to $260,000 in ERC! This makes it worth the effort, but it can still be difficult to calculate and deal with the IRS. Typical payroll companies are not set up to handle the ERC, and even CPA’s are generally not set up to accurately handle or maximize the amount of ERC a company actually qualifies to receive.
The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.