Key Takeaways:
- This credit is worth up to $26,000 per employee.
- You can qualify if your 2020 revenue dropped by 50%.
- A revenue drop of 20% qualifies you for 2021.
- You can also qualify if you had to shut down or suspend operations.
- The credit is based on wages paid from March 12, 2020, to September 30, 2121.
- Qualifying disaster recovery start-ups can also claim the credit for Q4 2021.
- ERC Today can help you apply for this credit.
There is still time to apply for the ERTC tax credit in 2022. The credit is no longer available for current claims, but you can claim it retroactively by amending your employment tax returns. The IRS lets you amend returns and claim refunds for up to three years after the filing deadline. That means the deadline for claiming the ERTC is three years after the original due date for the tax return.
The employee retention tax credit (ERTC) is available to qualifying employers for the last three quarters of 2020 and the first three quarters of 2021. The employer’s tax return for the second quarter of 2020 was due July 31, 2020. This means that you can amend these returns and request a refund until July 31, 2023.
The payroll tax return for the third quarter of 2021 was due on October 31, 2021. That means that you have until October 31, 2024, to amend this return and request a refund.
There is still time to claim the ERTC tax credit in 2022, but you have to act fast if you want to beat the deadline. This tax credit can be complicated, so don’t wait to apply. Check out this guide and claim your refund as soon as possible. This guide explains the deadlines for claiming the ERTC tax credit retroactively. It also looks at the eligibility criteria and walks you through how to claim this credit.
What Is the ERTC?
The employee retention tax credit provides eligible employers with a refundable tax credit against the employer’s share of Social Security tax. The ERTC credit was worth 50% of eligible wages paid after March 12, 2020, and before January 1, 2021, and it was worth 70% of eligible wages paid from January 1, 2021, to September 30, 2021.
The credit is based on up to $10,000 of wages per employee in 2020 and up to $10,000 of wages per employee per quarter in 2021. This means the ERTC credit is worth up to $5,000 per employee for 2020, and it’s worth up to $21,000 per employee in 2021. That’s $26,000 per employee.
This can add up quickly. The deadline for earning the credit has already passed, but it’s still possible to claim the ERTC tax credit 2022 retroactively.
When is the Employee Retention Tax Credit deadline?
The Employee Retention Tax Credit deadline is currently set for December 31, 2021. Eligible employers can claim the credit until then and can even be claimed retroactively in certain cases.
Qualifying for the ERTC Tax Credit 2022
The qualification criteria vary between 2020 and 2021. Your business must have been affected by COVID-19 for you to qualify for the ERTC, and the IRS has strict criteria to define whether your business has been affected. Here is a breakdown of the specific qualification criteria.
1. Suspension of Operations
Businesses can qualify for the ERTC credit if they paid wages while their business was partially or fully shut down due to government orders in 2020 or 2021. This applies to basically any non-essential business that was forced to close its doors during COVID-19. It also applies to businesses that had to change how they operated.
A restaurant that had to switch to take-out only could qualify, for example. The government generally requires you to have at least a 10% reduction in the services that you were allowed to provide if you want to qualify for this credit. Businesses that don’t qualify under this rule may qualify if they had a reduction in gross receipts as explained below.
2. Decline in Gross Receipts
One way a business can qualify for the ERTC is if it had a significant decline in gross receipts. The IRS uses different numbers to define a decline in 2020 versus 2021.
You qualify to claim this credit if your gross receipts during the second, third, or fourth quarter of 2020 were 50% lower than they were during the same quarter of 2019. You can continue to claim the credit until your gross receipts from 2020 get up to 80% of the amount of the same quarter in 2019.
You qualify to claim the credit in 2021 if your gross receipts drop to less than 80% of the amount from the same quarter in 2019. Businesses that were not in operation in 2019 can use their 2020 numbers for comparison.
3. Number of Employees
The number of employees also impacts eligibility for the credit. Employers with fewer than 500 employees qualify to claim the credit for 2021 as long as they paid wages and meet one of the above criteria. You must have 100 or fewer employees to qualify for 2020 based on the above criteria. The IRS uses your number of employees from 2019.
Employers who are over the above thresholds can only qualify if they paid wages to employees who were not providing services because the business was shut down fully or partially due to COVID-19. They can also qualify if their employees couldn’t provide services due to a lack of demand. This is measured by a reduction in gross receipts.
This refers to employers who paid their employees even though they weren’t working, in other words. Large employers can only get this credit if they paid employees who weren’t working. Small employers can get this credit for any wages they paid. Both types of employers, however, have to meet one of the other two elements explained above.
These are the rules for claiming the ERC tax credit for employers. Self-employed freelancers, including YouTubers, Uber drivers, or anyone else who works for themselves, can’t claim this credit. They can, however, claim a similar credit.
They can claim a credit for sick leave if they missed work due to having COVID-19 or taking care of someone else who had the virus. They can also claim a credit if they couldn’t work due to taking care of their child while their school or daycare was closed due to COVID-19. This also applies to business owners.
How to Apply for the ERTC Tax Credit
Understanding the qualification criteria is just the first step. You also have to apply, which you do by filing amended payroll tax returns. Look for the tax form that you usually use followed by the letter X. Most employers file these tax returns quarterly, so they should use Form 941-X (Adjusted Employer’s Quarterly Tax Return). Employers who file annually should use Form 944-X (Adjusted Employer’s Annual Tax Return).
Filing amended employment tax returns can be tricky, especially if you don’t normally file these returns. You don’t have to do the paperwork on your own, though. You can also just work through these steps and apply for the ERTC tax credit 2022 using an ERTC service. Here is how to apply for the ERTC tax credit using ERC Today.
1. Work Through the Pre-Qualification Steps
The first step is to make sure you’re qualified. The above criteria can work as a guideline but to be on the safe side, you should work through the online pre-qualification application. It will ask you questions about the number of employees you had in 2019. It will also ask you if your revenue declined or if you experienced a business disruption due to COVID-19.
Business closures are one example of disruption. Supply chain issues can also help you qualify. Gather details about your gross receipts before you start using the application. This will allow you to provide more accurate answers.
2. Fill Out Basic Details about Your Business
You need to provide basic details about your business once you establish that you’re pre-qualified. This includes information such as your business name, address, and contact person. You may also need to note details about your payroll software and, if applicable, the name of your payroll provider or accountant.
3. Upload a Payroll Report
The ERTC credit is based on how much you paid your employees during the quarters that you qualify for the credit. You need to upload a payroll report to establish this fact. The report should show how much you paid your employees and how much was withheld for income and payroll taxes.
The ERC Today application shows you how to find a payroll report based on the software you use. Enter your software and the application walks you through what you need to know. It has information on the majority of popular payroll providers, from ADP to Quickbooks.
4. Provide Copies of Your Employer Tax Returns
Claiming the ERTC credit 2022 requires you to amend your old employer tax returns. You need to upload the original copies of these returns so ERC Today can amend them for you. You will also file paperwork that shows the original amounts plus the updated amounts when you amend a tax return.
The returns you upload depend on the forms you’re required to file. Most employers use Form 941 (Employer’s Quarterly Federal Tax Return). Very small employers who pay less than $1,000 in payroll tax every year use Form 944 (Employer’s Annual Federal Tax Return), while farmers and fishers may use Form 943 (Employer’s Annual Return for Agricultural Employees).
5. Note if You Received a PPP Loan
Paycheck Protection Program (PPP) loans helped businesses cover payroll expenses during COVID-19. You need to note if you received this type of loan when you apply for the ERTC. A PPP loan doesn’t disqualify you, but you can’t get the credit on wages you paid with a PPP loan.
Applying for the ERTC tax credit is a unique process. Most payroll providers aren’t in a position to help their clients with this credit, and most accountants don’t know its ins and outs. That’s why it’s best to apply by using a service like ERC Today. You should expect to wait about 16 weeks for processing, as the IRS has had a significant backlog since the beginning of COVID-19.
Mistakes to Avoid with the ERTC
The ERTC is a complicated credit. It’s something the IRS has never done in previous years and has been modified several times since it was created. This is the perfect storm for errors. You need to avoid these common mistakes if you want to get the most benefit from this valuable credit.
- Assuming a PPP loan disqualifies you. The original rules stated you couldn’t get this credit if you had a PPP loan. This changed in 2021.
- Only looking at revenue. You can qualify based on a decline in revenue, but you can also qualify if you had to shut down or change operations due to COVID-19.
- Not including healthcare expenses. Wages, as well as the employer portion of health insurance expenses, can be used to calculate this credit.
- Missing the deadline. You can amend a tax return for an almost indefinite amount of time, but if you want a refund, you only have three years.
- Applying for the final quarter of 2021. You can only claim the credit for this quarter if your business is a recovery start-up business.
The biggest mistake you can make is not applying, since you may qualify even if you think you don’t. Gather your quarterly profit and loss statements for 2019, 2020, and 2021. Get together notes about business closures or operational changes during COVID-19. Find your payroll reports. The numbers from this paperwork are all you need to work through the pre-qualification steps.
Apply for the Credit Using ERC Today
ERC Today was created just for businesses like yours. We help businesses apply for this valuable credit, and you can get started right now. Don’t let this amazing opportunity pass you by – start the ERTC application today or contact us directly to ask questions.
