Is it still possible to claim the employee retention credit for the 2020 tax year?
In these challenging times, it is essential for small to medium-sized business owners to stay informed about financial relief options that can support their operations and workforce.
One such option is the Employee Retention Credit (ERC), a fully refundable tax credit designed to help eligible employers navigate the economic hurdles of COVID-19. You may be wondering if you can still claim this valuable credit for your qualified wages from the 2020 tax year.
The answer is yes, as long as your business qualifies. You can still claim the employee retention credit retroactively in 2023, 2024, and 2025.
Key ERC Credit Takeaways You Will Learn:
- Retroactive Claims Possible: Businesses can still file for the ERC for 2020 in 2023, 2024, and 2025.
- Maximum Credit: Eligible employers can receive up to $5,000 per employee for 2020.
- Eligibility Expanded: Includes businesses affected by COVID-19 through reduced gross receipts or full/partial suspension.
- Claim Process: Employers must file Form 941-X for retroactive claims, with proper documentation.
- Avoid Mistakes: Ensure accurate wage calculations and avoid overlapping claims with PPP funds.
See Important 2024 Employee Retention Tax Credit Deadline Information at the Bottom of This Article.
What Is The Employee Retention Credit (ERC)?
The Employee Retention Credit (ERC) is a refundable tax credit introduced in the CARES Act. It is designed to provide financial relief to employers affected by the COVID-19 pandemic.
Purpose And Eligibility Requirements
The primary purpose of the Employee Retention Credit (ERC) is to provide financial relief for eligible employers impacted by COVID-19, encouraging them to maintain their workforce during challenging economic times.
To be eligible for the ERC, an employer must either experience a significant decline in gross receipts or operate under a partial or full suspension due to government orders related to COVID-19.
A significant decline in gross receipts is defined as at least a 50% reduction in quarterly average annual gross receipts compared to those earned within the same third and fourth quarters as of 2019.
Eligible employers encompass both private-sector businesses and certain tax-exempt organizations. Notably, self-employed individuals are not eligible concerning their income from self-employment, but their paid employees may qualify if they have employees who receive wages paid by them.
Overview Of The ERC For 2020
Are you a small to medium-sized business owner wondering if you can still claim the Employee Retention Credit (ERC) for 2020? The ERC was introduced as part of the CARES Act in response to COVID-19, and it provides eligible employers with a refundable tax credit against certain employment taxes. In this blog post, we’ll provide an overview of the ERC for 2020, including eligibility requirements, maximum credit amounts, qualified wages, and changes made in response to the pandemic. Stay tuned to learn more about reducing your tax liability and retaining employees through the ERC.
Maximum Credit Amount And Qualified Wages
For the 2020 ERC, eligible employers can receive a refundable tax credit equal to 50% of qualified wages paid to employees, with a maximum credit of $5,000 per employee for the entire year.
Qualified wages are determined differently based on the employer’s average number of full time employees and part-time employees in 2019. Those with 100 or fewer full-time employees can claim ERC for all employee wages, even if they continued working full time employees despite COVID-19 disruptions.
In addition, qualified health plan expenses – such as employer-paid health insurance premiums – may also be included when calculating qualified wages for ERC purposes.
For example, if an eligible small business owner paid $8,000 in salary and contributed $2,000 toward their employee’s health insurance costs during a qualifying period in 2020, they could potentially claim up to $5,000 (50% x ($8,000 + $2,000)) as Employee Retention Credit against their employment taxes.
Credit Limits And Phaseout
In 2020, the Employee Retention Credit (ERC) allowed eligible employers to claim a refundable tax credit of up to 50% on qualified wages paid to employees, with a maximum credit limit of $5,000 per employee for the entire year.
For example, if an employer paid an employee $12,000 in qualifying wages throughout 2020, only the first $10,000 would be considered for calculating the ERC. In this particular scenario, the employer would receive a tax credit worth $5,000 (50% x $10,000), effectively reaching the annual cap for that specific employee.
Eligibility Criteria For Claiming ERC For 2020
Read on to learn who can claim the ERC for 2020 and what changes were made in response to the pandemic.
Who Can Claim ERC For 2020
Employers who had to partially or fully suspend operations due to government restrictions or those that experienced a significant decline in gross receipts (50% or more in gross receipts in the same calendar quarter, compared to gross receipts reduction in the same fourth quarter, in 2019), can claim the ERC for wages paid between March 13th and December 31st, 2020.
This credit, regardless of size, is available to eligible employers, including tax-exempt organizations. In addition, businesses that started operating after February 15th, 2020, can also qualify for this tax credit.
Changes Made In Response To The Pandemic
To help businesses during the COVID-19 pandemic, several changes have been made to the Employee Retention Credit (ERC). For example, Congress expanded the ERC retroactively to March 12th, 2020, via the Consolidated Appropriations Act.
This expansion allows more small and medium-sized businesses to claim employee retention credit for wages paid after March 12th, even if they had received a PPP loan. Additionally, eligible employers can now take advantage of advance payments on their expected credits for Q3 and Q4 of 2021.
How To Claim The ERC For 2020
To claim ERC for 2020, eligible employers must file Form 941-X, “Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund,” and provide supporting documentation demonstrating their eligibility.
Necessary Forms And Documentation
To claim the Employee Retention Credit (ERC) for 2020, eligible employers should file Form 941, Employer’s Quarterly Federal Tax Returns. However, if they have already filed their quarterly returns without claiming the ERC, they can amend them using Form 941-X.
It is also important to keep accurate records of employee wages and employment taxes paid during the qualifying period and any other supporting documentation that validates eligibility for claiming the credit.
For example, businesses must document how much qualified wages were paid to each employee for every calendar quarter in which they are claimed. Additionally, businesses may need to provide proof of a significant decline in gross receipts or full or partial suspension of operations due to COVID-19 if required by the IRS when asked.
Deadline For Claiming The ERC
Employers eligible for the Employee Retention Credit (ERC) should act quickly to claim it. The deadline for claiming the ERC is approaching, and qualifying employers can still claim the credit until April 15th, 2024, for wages paid in 2020 and April 15th, 2025, for wages paid in the first two, third and fourth quarters of 2021.
To maximize your eligibility and avoid missing out on these significant benefits of claiming ERC – reduced tax liability, increased cash flow, and ability to retain employees – keeping accurate records is essential.
Seek professional guidance if needed and consider retroactive claims as well.
Changes To The ERC For 2021
In 2021, the ERC was extended through December 31st with increased credit amounts and expanded eligibility criteria – read on to learn more about these changes.
Extension Of The ERC Through December 31st, 2021
The Employee Retention Credit (ERC) has been extended through December 31st, 2021. This means eligible employers can still claim the credit for wages paid after June 30th, 2021, and before January 1st, 2022.
The Consolidated Appropriations Act of 2021 expanded the ERC retroactively to March 12th, 2020. Employers can claim the ERC for qualified wages paid in Q1, Q2, and Q3 of this year.
Additionally, the full employee retention tax credit has been increased from a maximum of $5,000 per employee in total to $7,000 per employee per the same quarter and calendar quarter after that.
Increased Credit Amount And Availability Of Advance Payments
The Employee Retention Credit (ERC) has been extended through December 31st, 2021, and there’s good news for eligible employers. The employee retention tax credit amount has increased from a maximum of $5,000 per full employee retention tax credit work to $7,000 per full employee retention tax credit per calendar quarter.
This means businesses can claim more money back on their taxes if they have experienced financial difficulties due to the pandemic. Additionally, eligible employers can receive advance payments of up to 70% of anticipated ERC credits based on prior-quarter gross receipts for the current quarter.
For example, if a small to medium-sized business qualifies for an ERC credit worth $20,000 in Q4 of 2021 based on their wages paid and declines in gross receipts compared to pre-pandemic levels, they could receive an advance payment of up to $14,000 to help cover these costs before filing their income tax return again in 2022.
Expansion Of Eligibility Criteria
The ERC has seen several significant changes in eligibility criteria for 2021, making many small to medium-sized businesses eligible. The Consolidated Appropriations Act 2021 expanded the eligibility requirements, allowing more employers to qualify for the credit.
Under this new provision, businesses with a decline in gross receipts of at least 20% in any quarter compared to the same quarter in 2019 can claim the ERC. This expansion means that companies that did not experience a full or partial suspension of operations may still be eligible for the credit as long as they meet these criteria.
Understanding The Differences Between ERC And PPP
It’s important to understand the differences between ERC and PPP, including eligibility criteria and allowed uses of funds, before claiming either credit.
Eligibility Requirements And Allowed Uses Of Funds
Understanding the eligibility requirements and allowed uses of funds for the Employee Retention Credit (ERC) and the Paycheck Protection Program (PPP) is crucial for small to medium-sized business owners seeking financial assistance during these challenging times. The following table compares eligibility between these two relief programs to help you determine which option suits your business needs best.
| Criteria | Employee Retention Credit (ERC) | Paycheck Protection Program (PPP) |
| Eligible Employers | Businesses that experienced a significant decline in gross receipts or a partial or full suspension of operations due to COVID-19 | Small to medium-sized businesses, nonprofits, veterans organizations, and tribal businesses with 500 or fewer employees |
| Qualified Wages | Wages paid to employees after March 12, 2020, through Dec. 31, 2021 | Payroll costs, including salaries, wages, commissions, and tips, capped at $100,000 per employee on an annualized basis |
| Allowed Uses of Funds | The credit can be used to offset certain employment taxes on qualified wages and health benefits | Payroll costs, mortgage interest, rent, utilities, and other eligible expenses during the covered period |
| Credit Amount | 50% of qualified wages up to $10,000 per employee for 2020, and 70% of up to $10,000 per employee per quarter for 2021 | Loan amount up to 2.5 times the business’s average monthly payroll costs, with a maximum of $10 million |
| Forgiveness/Refundability | Refundable credit against certain employment taxes | Forgivable if at least 60% of the loan proceeds are used for payroll costs and the remaining for other eligible expenses |
It’s important to note that businesses can take advantage of ERC and PPP, provided they do not claim the ERC for the same wages used to qualify for PPP loan forgiveness.
Interaction Between ERC And PPP
The Employee Retention Credit (ERC) and the Paycheck Protection Program (PPP) were designed to help businesses affected by COVID-19. While employers can claim both, there are restrictions on overlapping benefits.
If you receive a PPP loan, you can also claim the ERC if you do not use the same wages for both programs.
For example, an eligible employer received $100,000 in PPP funds and paid qualified wages of $200,000 during that same period. The employer could use $100,000 of those wages to forgive their PPP loan and then take the ERC on the remaining $100,000 in qualified wages.
Common Mistakes To Avoid When Claiming The ERC
Employers must avoid making mistakes such as improper calculation of qualified wages, failure to file amended tax returns when necessary, and overlapping ERC and PPP claims.
Improper Calculation Of Qualified Wages
One common mistake to avoid when claiming the ERC is an improper calculation of qualified wages. To claim the credit, employers must determine which wages qualify and what constitutes eligible healthcare costs.
It’s crucial that businesses accurately calculate their eligible wages and expenses, including their payroll taxes, costs, and health insurance premiums. Failing to properly calculate these amounts could result in an underclaimed credit or even trigger an audit by the IRS.
Failure To File Amended Tax Returns
One common mistake businesses make when claiming the Employee Retention Credit (ERC) is failing to file amended tax returns. To claim the ERC retroactively for qualifying wages paid after March 12th, 2020, employers should amend their applicable employment tax returns using Form 941-X.
For example, imagine a small retailer who experienced a significant decline in gross receipts due to COVID-19 and is eligible for the ERC. However, they failed to file an amended tax return reflecting the credit amount they are entitled to receive.
To avoid this mistake and ensure you receive all available tax credits and refunds, working with a professional accountant or tax advisor familiar with ERC rules and regulations is important.
Overlapping ERC And PPP Claims
Businesses can claim both the Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) loans, but there are some limitations on how they can be used.
Businesses cannot use both programs for the same wages or payroll costs. For example, if a business uses PPP funds to cover payroll costs during a certain period, those same wages cannot also be used to claim the ERC for that same period.
It’s important for small to medium-sized business owners to understand these restrictions in order to maximize their benefits from both programs. Seeking professional guidance when applying for these programs can help ensure compliance with regulations and avoid any potential issues down the line.
Tips For Maximizing Your ERC Claim
To maximize your ERC claim, keep accurate records of qualified wages paid and seek professional guidance from a tax expert or accountant, especially when navigating the interaction between ERC and PPP.
Keeping Accurate Records
To ensure that you maximize your Employee Retention Credit (ERC) claim, it is important to keep accurate records of all qualifying wages paid to employees. This includes tracking the dates and amounts of payments made and which specific employees are being paid.
The importance of accurate records cannot be overstated when claiming tax credits like the ERC. By maintaining detailed and organized records, businesses can easily identify eligible wages and determine the total amount they can claim on their tax returns.
This reduces the risk of errors and ensures that they do not miss out on any potential credits they may be entitled to.
Seeking Professional Guidance
Navigating the ins and outs of claiming the Employee Retention Credit (ERC) can be overwhelming for small to medium-sized business owners. Seeking professional guidance from a tax professional, accountant, or attorney with experience in this area can help ensure you are eligible for the ERC and maximize your claim amount.
With retroactive claims available for qualifying wages paid after March 12th, 2020, seeking professional guidance can help identify potential opportunities to make up missed credits from previous quarters.
Additionally, a tax professional or accountant may provide valuable advice on keeping accurate records of all qualified wages paid and related expenses such as health insurance and benefits costs.
Considering Retroactive Claims
If you missed out on claiming the Employee Retention Credit (ERC) for 2020, don’t worry – it’s not too late. The ERC can be taken retroactively, for qualifying wages paid after March 12th, 2020.
If your business was eligible for tax amounts but did not claim the ERC last year, you can still file an amended tax return to receive the credit.
For example, say your small business experienced a significant decline in gross receipts due to COVID-19 and was eligible for the ERC in Q2 of 2020 but didn’t claim it then.
You could still amend your employment tax returns and get back up to $5,000 per employee in qualified wages paid only during that same calendar quarter.
Benefits Of Claiming The ERC
Claiming the ERC can provide small to medium-sized business owners with a reduced tax liability, employment tax deposits, increased cash flow, and the ability to retain employees during difficult economic times.
Reduced Tax Liability
One significant benefit of claiming the Employee Retention Credit (ERC) is reduced tax liability. The ERC is a refundable tax credit that allows eligible employers to take employer credits to offset their employment tax liabilities with qualified wages paid to employees during certain periods affected by COVID-19.
This means that instead of paying payroll taxes only on the full amount of these qualified wages, businesses can reduce their tax bills by up to 50% of these paid qualified wages. For example, if an eligible employer paid $10,000 in qualified wages for a given quarter and claimed the maximum ERC of $5,000, they would only need to pay taxes on the remaining $5,000.
Increased Cash Flow
One significant benefit of claiming the Employee Retention Credit (ERC) is increased cash flow. This refundable tax credit can help offset employment taxes, reducing a business’s overall tax liability and freeing up funds that can be used for other purposes, such as operations or expansion.
For example, if an eligible employer claims the maximum ERC amount of $5,000 per employee for 2020 and has 50 qualifying employees, they could receive a total credit of $250,000.
Furthermore, employers can claim advance payments of up to 70% of their estimated ERC amounts for each calendar quarter in anticipation of future qualified wages. This means that eligible employers may receive immediate advance payment from the Internal Revenue Service (IRS), which can further improve their cash position while providing additional liquidity to support ongoing operations.
Ability To Retain Employees
One of the primary benefits of claiming the Employee Retention Credit (ERC) is the ability to retain employees. This tax credit can help businesses keep their staff on, even when facing financial difficulties due to the pandemic.
For example, if an eligible employer paid an employee $10,000 in qualified wages during a specific period and claimed the ERC, they would receive a $5,000 tax credit. This can be a significant incentive for businesses struggling with cash flow issues or who have had to reduce hours or furlough workers.
Conclusion and Summary on Can You Still Claim the Employee Retention Credit For the 2020 Tax Year?
In conclusion, claiming the Employee Retention Credit (ERC) can provide significant financial relief for eligible employees of small to medium-sized businesses impacted by the COVID-19 pandemic.
The ERC is a refundable tax credit against certain employment taxes equal to 50% of the qualified employee wages. Employers should keep accurate records and seek professional guidance when determining their eligibility and calculating their claim amount.
With deadlines approaching in April 2024 for the 2020 ERC and April 2025 for the 2021 ERC, qualifying employers must take advantage of this opportunity as soon as possible.
Good news. There is still time to file! The employee retention tax credit can still be claimed retroactively and there is still time to file, even in 2023, 2024, and 2025 for the past tax years.
Employee Retention Tax Credit (ERC / ERTC) Help: Claim Up To a $26,000 Refund Per Employee for Your Business
Disaster Loan Advisors™ can assist your business with the complex and confusing Employee Retention Credit (ERC) and Employee Retention Tax Credit (ERTC) program, without you having to pay an excessive percentage of your hard earned ERC refund.
DLA doesn’t charge a percent like many companies do. Our flat fee structure is fair and reasonable based on the amount of work involved. Keep More of Your Refund™
Depending on eligibility, business owners can receive up to $26,000 to $33,000 per employee based on the number of W2 employees you had on the payroll in 2020 and 2021.
The ERC / ERTC Program is a valuable IRS tax credit you can claim. This is money you have already paid to the IRS in payroll taxes for your W2 employees.
Schedule Your Free Employee Retention Credit Consultation to see what amount $ of employee retention tax credit your company qualifies for.
ERC Deadline Urgency in 2024
April 15, 2024 Deadline for the 2020 ERC Tax Year
The deadline is coming up for the final opportunity to retroactively claim your business Employee Retention Credit for the past 2020 tax year. With the April 15, 2024 deadline fast approaching, we urge you; don’t let this final chance pass!
While not all businesses will qualify, as it depends on multiple factors per IRS Rules and Guidelines, you might be leaving significant financial relief on the table from prior COVID impact to your business during the past 2020 and 2021 business operation years.
Last year, in September 2023, the IRS temporarily paused processing ERC Claims for the remainder of last year. We at Disaster Loan Advisors (DLA) predicted this over one year ago when we made this ERC video warning business owners. See the ten-minute mark of the video for details.
TAKE ACTION NOW IN 2024
Even though the IRS has temporarily paused processing, you will still want to check eligibility and file now (if you qualify) because once the IRS will resume processing, ERC tax credit claims are processed in the order they are received.
If you haven’t previously filed for the ERC Credit, it is worth scheduling a phone call to at least explore your possible eligibility from both the past 2020 and 2021 business tax years. Contact us today for a deep-dive analysis to determine if your business qualifies one or more quarters from the 2020 and / or 2021 tax years.
As a leading dedicated member of the Tax and Accounting Team at Disaster Loan Advisors™, Mark focuses on unlocking the ERC Tax Credit's potential for eligible firms that qualify, providing strategic advice, and detailed guidance to ensure substantial financial recovery and growth. His methodical approach to client engagement includes comprehensive deep-dive analysis, customized consultation and guidance, and a commitment to achieving tangible results for each business served.
Disaster Loan Advisors™ (DLA) offers a comprehensive suite of services designed to navigate the complexities of the Employee Retention Tax Credit (ERC) program, ensuring that qualified businesses leverage the maximum possible benefit with minimum hassle. Unlike some firms that charge exorbitant contingency or percentage-based fees (often between 10% to 30% of your ERC refund), DLA operates on a fair and reasonable, transparent flat-fee structure that aligns with the IRS's guidelines.
If you are looking for an ERC Company that believes in providing professional ERC Services and value for small business owners, in exchange for a fair, reasonable, and ethical fee for the amount of work required, Disaster Loan Advisors™ is a good fit for you. STAY SAFE. STAY COMPLIANT. KEEP MORE OF YOUR REFUND.™
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