The Employee Retention Credit (ERTC) is a refundable tax credit encouraging companies to maintain their payrolls throughout the COVID-19 pandemic. Businesses that hired employees while closed due to the pandemic or had large drops in gross receipts between March 13, 2020, and December 31, 2021, are eligible for the credit. For companies to benefit from this program and obtain the credit they are entitled to, filing for ERTC is essential. We will thus walk you through the process of applying for credit with an ERC credit company and provide an overview of the significance of filing for ERC now.
Understanding Employee Retention Credit
The Employee Retention Credit (ERC) is a refundable tax credit created to incentivize firms to keep employees on the payroll. The ERC benefits equal 50% of the qualified wages an eligible employer pays. To assist businesses impacted by the COVID-19 epidemic, the ERC was included in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
How ERTC works
The ERC is a refundable credit that companies may apply toward certain employee health insurance premiums and other qualified wages. The credit can be used for 50% of qualified wages paid between March 13 and December 31, 2020. The credit was equal to 50% of up to $10,000 in qualified wages, including amounts paid for health insurance for all applicable calendar quarters commencing March 13, 2020, and ending December 31, 2020, with a ceiling of $10,000 per eligible employee per year.
Any employer in the private sector or a tax-exempt organization operating a trade or company in 2020 can receive the employee retention credit. For 2021, eligibility rules have been revised. The employer’s business operations must have been suspended in full or for a significant portion to qualify for the credit.
Qualified wages and employee caps
Wages paid by an eligible employer to workers after March 12, 2020, and before January 1, 2022, are qualified wages. All eligible employers, regardless of size, who pay workers qualified wages are entitled to the credit. However, there are various regulations for businesses with more than 500 workers.
Gross receipt reduction
The gross receipt reduction test calculates how much a company’s gross receipts decreased from the same quarter the previous year. To be eligible, employers must meet certain criteria, including a gross receipt reduction test. The ERC has been updated for 2021, and different rules apply to employers with more than 500 employees.
How to Apply for Employee Retention Credit
To apply for the ERC benefits, eligible employers can claim the credit on their federal employment tax return with the ERC. The following steps will help you apply for ERC:
Employers must determine eligibility for the ERC based on the criteria outlined in the CARES Act and subsequent legislation.
Calculate the credit
Employers must calculate the amount of credit they are eligible for based on the qualified employee wages.
File Form 941-X
Employers can apply for the ERC retroactively by submitting Form 941-X within three years of the original Form 941’s filing date or two years from the day the tax was paid, whichever comes first.
Employers can still retroactively claim the ERC by filing Form 941-X. The form must be filed within three years after the first return was filed or two years after the tax was paid, whichever comes first.
Deadlines for claiming ERTC
The deadline for claiming the ERC depends on when the original Form 941 was filed or when the tax was paid. Employers have up to three years since the original Form 941 was filed. Or two years after they paid the tax, whichever comes first, to file Form 941-X and claim the ERC.
Tips for Filing Employee Retention Credit
Filing for the Employee Retention Credit (ERC) can be challenging and requires careful attention to detail and timely action. Here are some tips for filing the ERC:
Keep accurate records: Employers should keep accurate records of qualified wages paid to employees to ensure they are eligible for the ERC.
Seek professional help: Employers should seek professional help from an expert in tax law or accounting to ensure they maximize their potential credit while avoiding pitfalls.
Avoid common mistakes: Employers should avoid common mistakes, such as claiming credit for ineligible employees or wages.
During the COVID-19 pandemic, the Employee Retention Credit (ERTC) scheme allowed businesses to keep their employees on the payroll. Filing for ERTC is essential for businesses to fully benefit from the scheme and receive the credit to which they are entitled. Companies must file their quarterly payroll tax return using Form 941 to monetize the ERTC for each payroll period. Employers can claim the ERTC, a broad-based refundable tax credit, for wages paid to employees between March 13, 2020, and the first three quarters of 2021. It’s important to note that the ERC is subject to income tax because it reduces the employer’s aggregate salary deductions.
By following the guidelines and utilizing the resources provided by the IRS and other professional sources like an ERC credit company, businesses can successfully file for ERTC and receive the credit they deserve.
How to Calculate the Employee Retention Credit?
Each employee’s qualified wages for the relevant calendar quarter must be determined by eligible businesses to calculate the ERC.
When is the deadline for claiming ERC funds for Q1, Q2, or Q3 in 2021?
The deadline for claiming ERC funds for Q1, Q2, or Q3 in 2021 is April 15, 2025.