If you are a business suffering from the impact of coronavirus, you may qualify for a retroactive retention credit against employee wages you paid during 2020 and 2021.
Maybe your participation in the Employee Retention Credit (ERC), also known as the Employee Retention Tax Credit (ERTC) was going well. Then cancellation of the plan three months early now have you owing retention benefits back to the government.
Perhaps you thought about applying for ERC but found learning the rules, regulations, and changes to the program confusing, so you gave up.
Since ERTC went into effect there have been numerous changes to the program. Businesses not qualifying at its introduction may now be eligible. Businesses suffering because of the early ending have recourse.
Don’t assume your payroll service or CPA found all the credit you are entitled to under ERC. The government allows a three-year look-back at payroll and the ability to file retroactively.
We are going to explain what opportunities remain and how you can get help with the review and filing process.
You Can Still Claim Employee Retention Credits
Even though the ERC ended September 30, 2021, you have an opportunity to determine your company’s eligibility and apply. This is because of a three-year payroll look-back option. That lookback period allows you to claim the credit on an amended Form 941.
During 2021 an eligible employer may claim a maximum of $7,000 per quarter for each qualifying employee. There is a possible total claim of $21,000 per employee.
Refund amounts in 2020 were 50% of your first $10,000 in wages, or a maximum of $5,000 per quarter per employee. The program began March 12, 2020, so this adds up to a possible total claim of about $17,500 per employee.
The financial benefits are substantial because ERC is a fully refundable credit. This means the business may receive a refund higher than the payroll taxes they collect.
For open quarterly pay periods, businesses complete advance payment Form 7200 then claim ERC when completing the standard 941 quarterly filings. Receiving the credit retroactively requires filing an amended Form 941-X.
For an employer to qualify, they must experience a government shutdown due to Covid-19 in 2020 and/or 2021. Even if you did not experience a shutdown, you may qualify if your business saw a 20% or more decline in gross receipts because of coronavirus. This decline must show when comparing it with the same quarter during 2019.
The next eligibility requirement is determining whether you are a large or small business. To qualify as a small employer you need to average 500 or fewer full-time employees. If you qualify as a small business, you may be eligible to include all wages paid during that quarter.
When conducting your ERC analysis, exclude any wages that fall under the Paycheck Protection Program (PPP) forgiveness.
Information Necessary to Determine Qualification
Whether making calculations yourself or applying through a professional service like ERC Today you will need to gather the following information:
- Quarterly revenue summary for 2019, 2020, and 2021
- Quarterly payroll tax returns
- Detailed report of employee wages by date paid
- Summary of the lines of business (services, products, etc.)
- Location of business operations and employees
- Detailed report of wages paid to employees when not working due to COVID
- Detailed report of wages paid under the Paycheck Protection Program (PPP)
- Employee relationship status for every employee to determine whether ineligible (i.e. brother, sister, in-law, step-parent or sibling, etc.)
- Report regarding health insurance expenses paid on each employee
The above information will allow proper calculations to be made on whether your business and every employee qualify for ERC.
IRS Notice 2021-65
IRS Notice 2021-65 makes modifications to six prior notices and implements changes to the Infrastructure Investment and Jobs Act. This notice provides relief for employers anticipating ERC credits for the 4th quarter of 2021. Those 4th quarter credits are no longer available because of their elimination.
The IRS is waiving penalties if employers follow specific steps. Employers making requests for advance payment of their 4th quarter ERC must now repay the excess advance payment by the employment tax return due date. Employers reducing their employment tax deposits because of the ERC must stop this practice by December 20, 2021.
In addition to depositing unpaid amounts by the due date, the employer must report on their employment tax return their tax liability resulting from the ERC termination.
To fully understand how the ERC got to this point, you need to take a look at the background of this tax credit program.
Coronavirus Aid, Relief, and Economic Security (CARES) Act
The CARES Act § 2301 of 2020 allows eligible employers to receive an employee retention credit. The requirements include verifying the employee qualifies under the plan and is based on both wages and health care plan expenses. The payroll period under the plan is March 12, 2020, to January 1, 2021.
Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act)
The Relief Act § 206 made retroactive amendments and changes to § 2301 of the CARES Act for qualifying wages. The main change was an expansion of employer eligibility, allowing more employers to claim the credit.
Section 207 of the Relief Act extends the application for ERC to wages paid between December 31, 2020, to July 1, 2021, and modifies calculations of the credit amount.
American Rescue Plan (ARP) of 2021
The American Rescue Plan § 9651 provides ERC for wages paid between June 30, 2021, and January 1, 2022.
Section 3134 added “recovery startup businesses” as eligible for receiving ERC on qualifying wages in the 3rd and 4th quarters of 2021.
IRS Notice 2020-22, 2020-17, IRB 664, and More
Three notices on March 31, 2020, to provide penalty relief under § 6656 for failure to deposit employment taxes. This is for employers qualifying for refundable tax credits under the Families First Coronavirus Response Act (Families First Act) and CARES Act.
Notice 2021-24 provides an extension to penalty relief for employers claiming credit under ARP, including ERC.
IRS Notice 2021-49 provides businesses with guidance on the ERC under § 313, clarifying regulations.
Notice TD 9953, 86 FR 50, 637
These notices came out on September 10, 2021. They set forth temporary regulations regarding the Recapture of Excess Employment Tax Credits under the American Rescue Plan Act of 2021.
The regulations authorize assessing and collecting erroneous refunds of certain credits, including ERC.
Infrastructure Act § 80604 Amendment
This amendment applies to wages paid June 30-October 1, 2021. If the business is a recovery startup, the ending date is January 1, 2022.
It also amends the recovery startup business definition, removing requirements that made recovery startups previously not eligible.
It May Come Back
To raise additional revenue, Congress revoked the final 2021 quarter of ERC under the belief that ERC is underutilized. Out of approximately $85 billion available under ERC, businesses’ claims total only $18.4 billion through the 2021 first quarter.
Nonprofits and small businesses are lobbying congress to reinstate the program. The basis of this argument is that reinstatement needs to be part of any new pandemic aid.
Democratic senators are considering the need to put the ERC back in place. It is uncertain whether Republicans will back this proposal. ERC is coming into talks about ongoing COVID relief.
Congress realizes the ongoing coronavirus variants make it difficult for small businesses to meet the goal of retaining employees. ERC helps remedy this problem.
Get Your Retroactive Employee Retention Credit
Analyzing and calculating the Employee Retention Credit is complicated and time-consuming. The IRS has more than 100 pages of rules pertaining to ERC. Mistakes in filing can lead to audits, interest, and penalties.
To ensure you receive all ERC you qualify for contact ERC Today. We can assist you in determining whether you meet employer and employee qualifications. We will answer your questions and help you apply for retroactive credit.