Employee Retention Credit Still Available for Some Small Businesses

As a small business owner navigating the financial challenges brought about by the COVID-19 pandemic, you may be eligible to claim the Employee Retention Credit (ERC) on your taxes. This tax credit, introduced by the United States government as part of the CARES Act, aims to provide financial relief to businesses that retained their employees during the economic hardship caused by the pandemic.

While this credit can be great news for small businesses that weathered the pandemic, it has also been the subject of misleading information and scams. The IRS warns to be wary of:

  • Unsolicited calls or advertisements mentioning an “easy application process.”
  • Statements that the promoter or company can determine ERC eligibility within minutes or before any discussion of the employer’s tax situation. The Employee Retention Credit is a complex credit that requires careful review before applying.
  • Large upfront fees to claim the credit.
  • Fees based on a percentage of the refund amount of ERC claimed.
  • Promoters telling businesses to claim the ERC because they have nothing to lose. Those who improperly receive the credit could have to repay it – along with substantial interest and penalties.
  • Promoters telling businesses to ignore the advice of their trusted tax professional.

To help you understand the basics of claiming the ERC credit, we have compiled a brief outline of its requirements based on the IRS’s website.

The program already ended…are applications really still open for the ERC Tax Credit?

Yes! Businesses are still eligible to apply for the Employee Retention Credit retroactively, even though the program has ended. Businesses have a window of up to three years from the program’s conclusion to conduct an analysis and submit for their credit. For the quarters of 2020 (Q2, Q3, and Q4), amended returns can be filed until April 15, 2024. Similarly, for eligible quarters in 2021, businesses have until April 15, 2025, to file amended returns. For the majority of businesses, the credit can be granted based on wages disbursed until September 30, 2021. However, specific businesses might have until December 31, 2021, to have paid qualifying wages.

It’s important to reiterate that businesses are no longer allowed to make wage payments with the intention of applying for the ERC. It’s also worth noting that the ERC functions as a tax credit and not a loan. It relies on payroll taxes previously submitted by employers during the quarters mentioned in the paragraph above.

To qualify for the ERC, your business must meet one of the following criteria:

  1. A significant decline in gross receipts: Your gross receipts in a quarter must have declined by 50% or more when compared to the same quarter in the previous year.
  2. Full or partial suspension of operations: Your business was fully or partially suspended by a governmental order during any quarter due to COVID-19.
  3. Qualified as a recovery startup business for the third or fourth quarters of 2021

Claiming the Credit:

To claim the ERC, you need to report it on your federal employment tax return, specifically on Form 941, Employer’s Quarterly Federal Tax Return. If you didn’t claim the credit when you filed your original employment tax return, you can claim it by filing adjusted returns, such as Form 941-X, to retroactively claim it for qualifying quarters.

It’s crucial to stay up-to-date with the latest guidelines and changes in ERC regulations, as tax laws may evolve over time. To ensure accurate compliance and maximize your benefits, consult with a tax professional and refer directly to the IRS website for the most current and verified information on claiming the Employee Retention Credit.

By understanding and taking advantage of the ERC, small business owners can access valuable financial support. Remember, timely and accurate filing can significantly impact the success of your tax credit claim and seeking the advice of a licensed tax professional can greatly help you in the process. 

To learn more about the ERC tax credit, take a look at the up-to-date information on the IRS’s website.