Stay Ahead of the Game: Be Ready for the Employee Retention Credit Deadline

Employee Retention Tax Credit (ERTC) is a refundable tax credit intended to encourage eligible businesses to keep employees on their payroll during the economic uncertainty caused by the pandemic. The distinction is calculated on employee wages, providing a substantial tax benefit to a recovery startup business and eligible employers. However, staying on top of the deadlines for claiming this credit is crucial.

Changes in the law have extended the ERC deadline through December 2021, but it's important to note that claim periods for the ERC are split by year and quarter. Claim within the specified deadlines to ensure eligible businesses get all this valuable financial support. Understanding the timeline for the Employee Retention Credit deadline and the process of claiming the credit is vital to leverage this opportunity fully. Let's delve deeper into what these deadlines mean for your business and how you can make the most of the ERC.

Understanding The Employee Retention Credit Deadline

Understanding the exact timing for the Employee Retention Credit application deadline ensures you can benefit from this credit. The ERC deadline is typically the end of the calendar quarter following the quarter for which the credit is claimed. This implies that the deadline for claiming the ERC for wages paid during the first quarter (January to March) would be the end of the second quarter, i.e., the end of June.

However, the nuances don't just end there. Businesses claiming the ERC for 2020 must claim the ERC until the filing due date — including extensions — for their 2020 Federal employment tax return. For instance, if your business is extending the filing of the 2020 federal employment tax return, you'll have until the extended due date to claim the ERC for 2020. If you've already filed your federal employment tax return and did not claim the ERC, you can still do so by filing an amended return.

Regarding 2021, the ERC must be claimed by the due date of the employer's employment tax return, including extensions, for the first quarter that follows the quarter in which the wages were paid.

Remember, time flies, and so do these deadlines! Take advantage of your chance to utilize this credit, which could significantly boost your payroll budget and overall cash flow. We suggest starting the application process before the deadline to avoid any last-minute panic. The sooner you act, the sooner you can enjoy the financial benefits of the payroll taxes credit!

Upcoming Employee Retention Credit deadlines:

• Deadline for 2020 tax year (Q2-Q4)- April 15, 2024
• Deadline for 2021 tax year (Q1-Q4) - April 15, 2025

Criteria For Employee Retention Tax Credit Eligibility

Determine Reduction in Business Operations

This process involves figuring out whether your company's operations were entirely or partially stopped due to governmental orders or whether your gross receipts drastically fell in a given quarter compared to the same quarter in 2019.

Calculate Gross Receipts

A significant decline in gross receipts happens when they drop below 50% for the same quarter of the previous year (applicable to 2020) or below 80% for the same quarter in 2019 (relevant to 2021).

Evaluate Employee Count

Your number of employees in 2019 determines how the credit is calculated. If you had more than 100 employees in 2019, you could only count the wages of those unable to work. If you have 100 or fewer employees, all wages can be measured, regardless of whether the employee worked.

Assess Claiming of Other Credits

Suppose you claim other payroll tax credits, such as the Families First Coronavirus Relief Act (FFCRA) credits for sick and family leave. In that case, you cannot use the same salaries to apply for the Retention Tax ERC Credit.

Consider PPP Loans

Employers who received a Paycheck Protection Program (PPP) loan in 2020 are not immediately disqualified from claiming the ERC. However, you cannot claim the ERC on wages paid with the PPP loan proceeds that have been forgiven.

Monitor Legislative Changes

Stay updated on legislative changes related to the Employee Retention Credit. Guidance and legislation from the Internal Revenue Service (IRS) about this credit have been updated multiple times since the pandemic's start, and future updates could affect your business's eligibility.

Consult a Tax Professional

Given the complexities and frequent updates, it is advised to consult with a tax professional to ensure you're determining eligibility correctly and maximizing your potential credit.

Is the Employee Retention Credit Considered Taxable Income?

When seeking the Employee Retention Credit (ERC), one of the employers' many questions is whether it counts as taxable income. The good news is that, according to the Internal Revenue Service (IRS) guidelines, the ERC does not count as taxable income. It's a tax credit against certain employment taxes, essentially reducing the federal employment tax you owe.

However, it's worth noting there is a catch. While the ERC itself isn't taxable, it does have tax implications. The Internal Revenue Service (IRS) set that businesses who receive the ERC must reduce their deduction for salaries paid or incurred by the amount of the credit. If you claimed $10,000 in ERC, you must reduce your wage expense deduction by the same amount. While the credit isn't taxable, it can indirectly impact your tax liability by lowering your wage deductions.

Investigating these tax implications in your financial planning ensures you're making the most out of the ERC. As always, it's advisable to consult with a tax advisor or financial professional to fully grasp the ERC's tax implications and ensure you comply with all IRS regulations.

Impact of the Employee Retention Credit on Your Tax Return

Regarding your tax return, the Employee Retention Credit (ERC) can significantly alter your tax landscape. It directly affects the amount of federal employment tax you need to pay, subsequently impacting your overall tax liability.

One crucial factor is that the ERC is a refundable payroll tax credit. This means that if the credit exceeds the total amount of federal employment taxes you owe, the IRS will refund you the difference. In other words, besides reducing your tax liability, the ERC could also contribute to a potential tax refund. This is a particularly appealing aspect for businesses that are navigating challenging economic circumstances.

Claiming the ERC can affect other tax credits you may be eligible for. The qualified wages paid to calculate your refundable tax credit cannot be used for other employment tax credits, like Work Opportunity Tax Credit (WOTC) or the Family and Medical Leave Credit. This means you must strategize applying these credits to maximize your total tax savings. Remember that this doesn't mean you have to choose between these credits. It means you cannot calculate the same wages to calculate both credits.

Furthermore, if you're a small business owner who has received a Paycheck Protection Program (PPP) loan, you must be careful when claiming the ERC. The IRS stipulates that any wages that qualify for ERC cannot be counted towards PPP loan forgiveness. Therefore, if you've received a PPP loan, you must ensure enough payroll costs outside the ERC to qualify for complete PPP forgiveness.

As you navigate these complexities, you must consult a tax professional who can help you optimize your tax strategies while ensuring that all your actions comply with IRS regulations. This can help you maximize the benefits of the amended payroll tax returns and other potential credits, ultimately boosting your business's financial health.

How Is The Calculation Process Of The Employee Retention Tax Credit?

The Employee Retention Tax Credit (ERTC) calculation process varies between 2020 and 2021 due to changes in the legislation. For 2020, eligible employers can claim a refundable tax credit equivalent to 50% of up to $10,000 in qualified wages (including certain health plan expenses) paid to employees. This results in the highest credit of $5,000 per employee for 2020.

For 2021, the percentage of qualified wages rose to 70%. Moreover, the ceiling on qualified wages also increased to $10,000 per employee per calendar quarter, compared to $10,000 for all quarters in 2020. Consequently, the maximum ERC available will be substantially higher in 2021, reaching up to $7,000 per employee per quarter ($28,000 annually).

It's critical to note that the definition of 'qualified wages' depends on the employer's average number of full-time employees. For employers with above 100 employees in 2019, qualified wages are those paid to employees for the time they were not providing services due to COVID-19. For firms with 100 or fewer employees, no matter whether the employee delivers services, all employee earnings are eligible for the ERC.

Calculating the ERC requires accurate payroll data, detailed record-keeping, gross receipts, and an understanding of the IRS guidelines. It's recommended for an eligible employer to seek guidance from tax professionals to ensure the calculations are done correctly, and the maximum benefit is claimed.

To learn more about the ERC program, visit the ERTC Express website. Its team of ERC Specialists can surely assist you!