Your Roadmap to Claiming ERC Refunds: Expert Advice That Works

Unlock the secret to claiming Employee Retention Credit (ERC) refunds with our expert-advised roadmap, designed to simplify the process and help boost your business's financial health.

Your Roadmap to Claiming ERC Refunds: Expert Advice That Works

The Employee Retention Credit (ERC) is a potent tool for businesses looking to maintain a robust workforce during challenging economic times. It's a refundable tax credit against certain employment taxes paid by employers. The ERC, established in reaction to the COVID-19 pandemic, offers financial assistance and encourages firms to keep their staff members on the payroll even in tumultuous times.

ERC refunds can be a game-changer for eligible businesses of all sizes, especially those hit hardest by the pandemic. The credit can be substantial, amounting to as much as $5,000 per employee in 2020 and up to $7,000 per quarter in 2021. Claiming these refunds can significantly bolster a company's financial standing, providing a lifeline to help them weather difficult times and invest in their future growth.

Employee Retention Tax Credit Eligibility

Eligible businesses must meet specific criteria to qualify for the Employee Retention Credit (ERC). These requirements, set forth by the IRS, are essential to understanding whether your business can take advantage of this valuable financial aid.

Who Are Eligible For ERC Tax Refund?

Below are the ones eligible for the refundable tax credit:

Businesses Experiencing a Significant Decline in Gross Receipts

Businesses would qualify for an ERC payroll tax refund if their gross receipts in a given calendar quarter of 2021 were significantly lower than in the corresponding quarter of 2019. The IRS stipulates a 20% decline in gross receipts for 2021 as a critical eligibility metric.

Employers Subjected to a Full or Partial Shutdown

You are an eligible employer for the ERC if your company's operations had to be fully or partially suspended due to a COVID-19-related governmental order. This includes companies that have had to reduce operating hours or capacity due to social distancing guidelines.

New Businesses

Companies that began operations after February 15, 2020, are also eligible for ERC tax refunds, provided they meet other established criteria.

Tax-Exempt Organizations

Regardless of size, a tax-exempt organization recognized by the IRS is eligible for ERC tax refunds.

Seasonal Employers

Businesses with a seasonal operation basis can also claim the ERC based on the eligibility criteria related to a drop in gross receipts or total/partial shutdown.

Who Are Ineligible For ERC Tax Refund?

Below are the ones ineligible for the refundable tax credit:

Federal, State, and Local Governments

Federal, state, and local government entities are not eligible for ERC tax credit. This ineligibility extends to any agencies or instrumentalities of these governments.

Businesses without Employee Wages

Businesses with no employees on the payroll or do not pay wages or compensation are ineligible for the ERC.

Companies Benefiting from the Small Business Interruption Loan

Companies that have received a Small Business Interruption Loan under the CARES Act's Paycheck Protection Program (PPP) cannot claim the ERC refund.

Self-Employed Individuals With No Employees

Self-employed individuals who do not have any employees are also not eligible for the ERC.

Decline In Gross Receipts Defined

The term "decline in gross receipts" refers to a significant decrease in a company's total revenue before any deductions for costs or expenses are made. This revenue encompasses all forms of business income, including sales of products or services, interest, rent, royalties, and any other operating income. A substantial drop in these total earnings during a particular quarter compared to the same quarter in a prior year is considered a decline in gross receipts.

The importance of this term in the context of ERC tax refunds lies in its role as a critical determinant of a company's eligibility. The IRS has clearly defined a significant decline as a 20% decrease in gross receipts for 2021 compared to the same quarter in 2019. Thus, understanding and correctly calculating your business's gross receipts and any changes in them is vital in claiming your ERC tax refunds.

Qualified Wages Defined

"Qualified Wages," in the Employee Retention Credit (ERC) context, refers to the compensation an employer pays its employees during the eligibility period. This includes not just their basic salary but also part of the cost of providing health benefits. However, it's crucial to note that the definition of "qualified wages" differs based on the business size.

Whether or not the employee supplied any services, all employee earnings during operations disruption or severe revenue reduction qualify for firms with an average of 500 or fewer full-time employees in 2019. In contrast, for employers with more than 500 average full-time employees in 2019, wages paid for the time the employees are not providing services due to business interruption are classified as paid qualified wages.

Recovery Startup Business Defined

In Employee Retention Credit (ERC) context, a recovery startup firm is a particular company that commenced operations after February 15, 2020. This designation recognizes the unique challenges faced by businesses that launched during the tumultuous economic period of the COVID-19 pandemic. Such businesses, though new, are eligible to claim the ERC, offering them a financial cushion as they navigate the complexities of establishing their operations amidst uncertain circumstances.

The appeal of considering a business as a "Recovery Startup Business" for ERC purposes lies in the financial relief it can provide. The maximum credit available to such businesses is $50,000 per quarter, even if they still need to meet the traditional criteria involving a significant drop in gross receipts or a shutdown due to a governmental order. This provision, therefore, creates a pathway for new businesses to benefit from the same financial assistance as longer-established entities despite their unique challenges and the timing of their inception.

How To Claim The Employee Retention Credit?

Follow the below steps to claim the Employee Retention Credit (ERC):

  1. Determine Eligibility: Ensure your business meets the eligibility criteria mentioned above.
  2. Calculate the Credit: Determine the qualified wages for each employee for each eligible quarter. Remember, the maximum credit is $7,000 per employee per quarter 2021.
  3. File Form 941: Complete and submit IRS Form 941, Employer's Quarterly Federal Tax Return, to apply for Employee Retention Tax Credit. You'll report each quarter's total qualified wages and related health insurance costs in this form.
  4. Claim Advance Payment (if applicable): If your business has less than 500 employees, you can request an advance credit payment by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
  5. Keep Detailed Records: Maintain comprehensive records of employment taxes, wages, and other documents to substantiate your claim.
  6. Consult with a Professional: Given the tax code's complexity, it is advisable to consult with tax professionals or ERC specialists familiar with the Employee Retention Tax Credit to ensure accuracy and compliance.

ERC Application Deadline

The Employee Retention Credit application deadline aligns with the standard due date for filing quarterly federal tax returns. For eligible employers operating on a calendar year, these deadlines typically fall around late April, late July, late October, and late January for the 1st, 2nd, 3rd, and 4th quarters respectively. It is important to remember that these deadlines could be adjusted or prolonged in unusual situations, such as in response to a significant incident like the COVID-19 pandemic.

If you missed the deadline to claim the ERC on your quarterly return, you can still claim it by filing an adjusted return or claim for a refund. For the tax year 2020, you can use Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, and for 2021, you use Form 941, the Employer's Quarterly Federal Tax Return.

However, it is essential to act promptly in these circumstances, as the statute of limitations for claiming a refund is generally limited to three years from the date the original form was filed or two years from the date the tax was paid.

Remember to consult with a tax professional or an ERC specialist to guide you through the process, ensure you meet all the deadlines, and help you stay abreast of any changes in the tax landscape. Always watch IRS announcements or visit their official website for updated information on filing deadlines and procedures.

Tips For Employee Retention Credit Application

  1. Get Familiar with the Terms: Understand essential terms related to ERC, such as 'qualified wages,' 'gross receipts,' and 'recovery startup business.' This understanding ensures accuracy in your application.
  2. Check for Updates: Keep an eye on the IRS website or subscribe to their newsletters for ERC rules, procedures, or deadline changes.
  3. Use Professional Help: Engage the services of a tax expert or CPA to help with the application. They can provide invaluable guidance and ensure accurate completion of forms.
  4. Organize Financial Records: Keep your financial documents, including payroll records and quarterly financial statements, organized and accessible. This can expedite the application process.
  5. Apply Even If Uncertain: If you need clarification on your eligibility, consider applying anyway. The worst-case scenario is denial, but the financial aid could be significant if approved.
  6. Double Check Information: Ensure that all information on the application is accurate and truthful. Errors or misrepresentations could result in penalties or disqualifications.
  7. Follow Up: After you submit your ERC application, follow up if you are still waiting for a decision within the expected timeframe. There could be delays due to the high volume of applications, but it's essential to ensure your application is recovered and remembered.
  8. Anticipate Possible Audit: Be prepared for a possible Internal Revenue Service (IRS) audit. Keep all necessary documentation that validates your claim for the ERC in case of inspection.

Get Help From ERTC Express

ERTC Express is an industry-leading platform dedicated to helping businesses seamlessly navigate the Employee Retention Credit process. With a deep understanding of the intricacies of tax regulations and the ERC's eligibility criteria, the expert team at ERTC Express offers comprehensive support to businesses throughout their Employee Retention Credit claiming journey. Through personalized consultations, they assist in determining eligibility, accurately calculating the credit, and preparing all necessary documentation, ensuring that businesses fully leverage the financial relief they qualify for.

Moreover, ERTC Express stands out for its commitment to staying abreast of the ever-evolving tax landscape. They continuously monitor updates from the IRS, keeping their clients informed about potential changes that could impact their Employee Retention Tax Credit claims. Their proactive approach not only aids in swift and accurate application filing but also in anticipating possible audits, equipping businesses with robust strategies to support their claims. With ERTC Express, businesses can confidently navigate the ERC process, secure compliance, and maximize their credit.