Have you heard about ERTC funding but aren’t sure what it is for? Do you want to know if your business qualifies for this credit? Have you heard about this credit but aren’t sure if you’ve missed the application deadline?
Unfortunately, like most programs that come about due to the COVID-19 pandemic, most of them ended in 2020 or 2021. Fortunately, thanks to the Infrastructure Investment and Jobs Act, eligible employers can retroactively claim this credit.
To learn more about ERTC funding and your eligibility, continue reading below. We will cover all you need to know about this credit and who you can reach out to for additional guidance.
What Is ERTC Funding?
The ERTC fund, also known as the Employee Retention Tax Credit, is a program created as a part of the CARES act to help employers keep their employees on the payroll. ERTC funds were used to pay eligible employee wages so they could stay on staff and receive payment for their work.
When the ERTC tax credit program started, it was available from March 13, 2020, up until September 30, 2021. Due to recent legislation through the Infrastructure Investment and Jobs Act, employers can now retroactively claim this credit.
1. Check Your Eligibility
Since the first tip for claiming ERTC funding is to ensure that you are an eligible business that can claim the tax credit, it’s important to understand who qualifies for the employee retention tax credit. In order to be eligible to claim funding for the ERC, you have to meet one of two main criteria.
One main criterion that your business must meet is in regards to your business operations. To qualify, your business must have been partially or completely suspended due to a government order. For partial closures, it can either mean that you could not operate on certain days or you had to reduce your hours to accommodate the government rule.
A Decline in Gross Revenue
If your business does not meet the first criteria, you can still qualify for the ERTC fund program if you can show that your company had a significant decline in quarterly gross revenue. You must be able to measure your decline in quarterly gross revenue against 2019.
For example, you must show that you had a 50% decline in 2020 when compared to 2019. For 2021, you must show you had at least a 20% decline in 2021 when compared to 2019.
Recovery Startup Businesses
For recovery startup businesses, the ERTC only applies to the third and fourth quarters of the fiscal year 2021. To qualify, the business must have been carrying on business or trade after February 15, 2020.
Your business must also not have annual gross receipts that don’t exceed one million dollars. Recovery startup businesses are not eligible for ERTC funds under the two listed above categories.
2. Learn How to Calculate for the 2020 ERTC Fund
For 2020, the ERTC credit is computed at a rate of approximately 50% of your employee’s qualified wages paid. This means that if you are an eligible business, you are able to claim up to $10,000 per employee in healthcare and wages for the entire year.
For 2020, there is a maximum credit of $5,000 per employee annually. If your business had less than one hundred full-time employees in 2019, the ERTC funding is available for all employees receiving wages in the fiscal year 2020.
3. Learn How to Calculate for the 2021 ERTC Fund
The credit available to claim for the 2021 ERTC fund program is different than in 2020. The credit is calculated at a rate of 70% of the employees’ qualified wages paid. This is still similar to 2020 in the aspect that you can claim up to $10,000 per eligible employee.
For 2021, there is a maximum credit of $7,000 per employee per quarter. The main difference between 2020 and 2021 is that you have the ability to claim up to $21,000 per employee for the first three quarters of the fiscal year. If you had less than five hundred full-time employees in 2019, you could use the credit for all eligible employees who received wages in 2021.
4. Review Your PPP Loan Status
Many employers wonder if they can still claim ERTC funding if they’ve taken out a PPP loan, and the answer is yes. You can claim ERC funds as long as your company meets the eligibility requirements listed above.
It is important to note that if you took a small business interruption loan under the PPP, you cannot take out the ERC credit. For further instruction on this, you can reach out to an ERC specialist, like ERC Today, for clarity on claiming the ERC credit if you’ve taken out a PPP loan.
5. Review Date Ranges for Eligible Wages
It is crucial for you to understand the different date ranges considered for determining if your employee’s wages are eligible for the ERTC funds. Under the CARES Act, the eligibility dates are between March 13, 2020, up until December 31, 2020.
Additional essential eligibility dates:
- Consolidated Appropriations Act (CAA) January 1, 2021, to June 30, 2021
- Recovery Startup Business July 1, 2021, to December 31, 2021
The final date you should know about is in regards to the American Rescue Plan Act. Under this act, eligibility dates range from July 1, 2021, to September 30, 2021.
6. Understand the Employee Retention Tax Credit Filing Deadline
Eligible businesses can retroactively claim this tax credit, and the statute for the payroll taxes states on April 15 of the year following the calendar year when the calendar quarter ends. From here, it goes on for three years.
So this means that you have until April 15, 2024, for 2020 ERTC funding claims. For ERTC claims in 2021, your business has up until April 15, 2025, to make those claims.
7. Review if Your Business Is a Recovery Startup Business
There are a few parameters that would make your business a recovery startup business. For example, if you started your business after February 15, 2020, you’re considered a recovery startup business.
Additional parameters that determine if your business is a recovery startup business:
- Annual gross receipts should average under one million dollars
- $50,000 total credit per calendar quarter
If you had your eligible wages extended through the last day of December in 2021, you also are considered to be a recovery startup business.
8. Review What Would Disqualify You
The ERTC credit is available for all employers, regardless of size, so you meet the above eligibility requirements. There are two exceptions to the rule. You cannot claim this tax credit if you are self-employed without any employees.
State and local government employers are also ineligible to claim this tax credit. If you are a tax-exempt organization, you can claim this credit.
9. Practice Some ERTC Calculations
Now that you have more of an understanding of how the credit works let’s do a quick example. Using the rules for 2020, let’s say you paid your employee, Jessica, $8,000 for healthcare and wages in Q2 and $6,000 for Q3 and Q4.
With this example, you can claim $4,000 in credits for her wages in quarter one and $2,000 in quarter three. You won’t be able to claim anything for the fourth quarter because you’ve already hit the $5,000 cap. So any additional wages paid are not eligible for the credit.
2021 ERTC Funding Example
Using the rules set out for 2021, let’s use another employee, Miguel. Let’s say you paid Miguel $8,000 in the first quarter, $10,000 the next, and $12,000 in the fourth.
The 2021 rule for the credit states that you can claim up to $7,000 per quarter for your employee. This means you can claim $5,600 for the first quarter and $7,000 for the second and the third quarter. For the fourth quarter, you won’t be able to claim the credit.
10. Understand Which IRS Forms to Use for the ERTC Funding
Before you file for your ERTC, you must know which forms you have to use. In order to accurately file for your credit, you will need to use form 941-X.
You may have already used form 941 to file your quarterly federal tax returns, including the initial employee retention tax credit claim. If you’ve used a PEO to file your 941 Form, you can reach out to them for that information so you can properly file Form 941-X.
11. Review Additional Tax Credits
Regardless of your eligibility for the ERTC, you may still qualify for other tax credits, such as the Emergency Sick and Family Leave Tax Credit. You could claim the Emergency Sick Leave Tax Credit if your employees had to take off work to care for their loved ones or themselves due to COVID.
You might qualify for this credit if you paid your employees’ sick leave wages between April 1, 2020, and September 30, 2021. This timeframe also applies if you paid sick leave wages to your employees who needed to take time off to care for others.
12. Take a Look at Sick and Tipped Wages
Per guidance from the Internal Revenue System, tips qualify for the funding credit if they were subject to FICA. If your employee’s tips were over twenty dollars in the calendar month, then all tips are accounted for in this tax credit.
As mentioned earlier, if you paid sick wages to your employee due to them needing to care for themselves or their loved ones, you can claim them for the tax credit.
13. Understand What Is a Qualified Wage
It is important to note that qualified wages are more than just gross pay. Qualifying wages include your part-time and your full-time employees, and you are able to add any qualified health plan expenses you paid on behalf of your employee.
This typically consists of the portion paid by you, the employer, and your employee’s pre-tax salary reduction contributions. Any amounts your employee pays towards their health plan that is paid with after-tax contributions do not count.
14. Seek Help from a Professional
As mentioned earlier, there are companies, like ERC Today, who can provide you with assistance claiming the ERTC credit. Filling out paperwork for any type of government tax credit can be daunting and exhausting, especially if you are unfamiliar with what to do with your Form 941.
Leaving the paperwork to the professionals can help you maximize what you can claim and how much you can receive. They also can walk you through the process and give you a better expectation of when to expect your credit payment.
15. Apply for the ERC Credit
Once you have all of your paperwork on hand and you’ve at least spoken with a company that can help you file your documents, it’s time to get started. Although the credit is available to claim for the next few years, the time to start applying is now.
Working with a company that has experience filing the amended 941-X Form will prove to be more beneficial than trying to handle it on your own. As a busy business owner, you already have a slue of other responsibilities and obligations you must fulfill.
New ERTC Retroactive Termination Guidance from the IRS
The IRS has released new guidance for employers who have been impacted by the retroactive termination of the Employee Retention Tax Credit (ERTC). The guidance, which is found in Notice 2021-65, lists the conditions that must be met to avoid a failure to deposit penalty.
For employers who reduced employment tax deposits in anticipation of receiving ERTC credits in the fourth quarter of 2021, but who then became ineligible for the credits due to the program’s early termination, the guidance includes deadlines for making up any missed deposits. Employers who requested and received an advanced payment of the ERTC for wages paid in the fourth quarter of 2021 will be required to repay the advances by the due date for the applicable employment tax return that includes the fourth quarter of 2021.
This new guidance from the IRS provides much-needed clarity for employers who have been affected by the sudden termination of the ERTC program. By understanding the requirements and deadlines laid out in Notice 2021-65, businesses can ensure that they are in compliance with IRS regulations and avoid any penalties.
Additional Notes about the ERTC Fund
There are a few common questions that a lot of business owners ask themselves when applying for this tax credit. One of the most common questions is about paying back the ERTC funding which was received.
The employee retention tax credit is a fully refundable tax credit you don’t have to pay back. This refund is permanent, and you get to keep whatever you receive.
CPEOs, PEOs, and 3504 Agents – How to Claim the Employee Retention Credit on Behalf of Your Client Employer
If you are an employer who uses a Professional Employer Organization (PEO) or Certified Professional Employer Organization (CPEO), you will not have to file a 941 form. You will still need to understand how to reconcile this information and receive the credit.
If you are a third-party payer (CPEO, PEO, or 3504 agent), you may be able to claim the credit on behalf of your client employer. To do so, you must collect from the client any information necessary to accurately claim the credit on its behalf. This includes obtaining information concerning the client’s claims for credits under section 45S of the Internal Revenue Code and the FFCRA, as well as whether the client has received a Paycheck Protection Program (PPP) loan authorized under the CARES Act.
Apply for ERTC Funding with Ease
COVID-19 threw so many different businesses for a loop, forcing many people to do their best to get back on their feet. Thanks to the Infrastructure Investment and Jobs Act, eligible employers have the opportunity to claim this credit for qualified wages.
If you want to learn more about the application process and you want someone with expertise in filing ERTC funding documents, contact us. Our team is ready to walk you through the process and answer questions you have about this credit and any other credit you may qualify for.