Business owners are still discovering the employee retention tax credit. Their biggest question is how long they have to still claim it.
If you’re an employer who missed out on claiming the Employee Retention Credit (ERC) in 2020, 2021, 2022, or 2023, you may be wondering if there’s still time to receive this tax credit.
The deadline to claim the ERC for 2020 and 2021 tax years is approaching quickly, and understanding the requirements and qualifying criteria is crucial to receive the credit.
Key ERC Takeaways:
- The deadline to claim the ERC Tax Credit for 2020 is April 15, 2024.
- The deadline to claim the ERTC Credit for 2021 is April 15, 2025.
- Eligibility for the ERC credit depends on several factors, including the size of the company and revenue loss during the pandemic.
- The tax credit covers up to 50% (in 2020) to 70% (in 2021) of qualifying wages, and can amount up to $5,000 per employee for 2020 and up to $28,000 per employee for 2021.
Knowing the intricacies of the ERC can be daunting, so it’s important to consult with a tax professional like DIsaster Loan Advisors to ensure you’re following the guidelines and maximizing your credit.
If you have not already filed, you can still claim the employee retention credit retroactively in 2023, 2024, and 2025.
See Important 2024 Employee Retention Tax Credit Deadline Information at the Bottom of This Article.
Exploring Some Key Aspects of The Employee Retention Credit
To claim the Employee Retention Credit, it is important to understand the qualifying factors for the credit and how it is calculated based on eligible wages.
Qualifying Factors For The Credit
To qualify for the Employee Retention Credit (ERC), small to medium-sized businesses must meet several crucial factors. First, employers must have experienced a full or partial shutdown or suspension of their business operations due to COVID-19 related government orders or face a significant decline in gross receipts.
In addition, employers can receive credit for up to $10,000 per employee annually during this period. This includes wages paid and costs associated with employer-paid health benefits.
For example, if an employer had five employees, each compensated with $2,000 worth of qualified wages plus an additional $1,000 in health benefits during one qualifying quarter, the eligible ERC amount would be $15,000: calculated as half of ($3k x 5).
ERC Calculation Process
Calculating the Employee Retention Credit for your small to medium-sized business involves determining the qualified wages paid to employees during eligible quarters and applying the applicable credit percentage.
For 2020, the credit equals 50% of up to $10,000 in wages per employee, resulting in a maximum credit of $5,000.
To calculate your total ERC amount for each eligible quarter within these periods, identify which employees are eligible and tally their respective qualified wage amounts.
This includes salaries, hourly pay, and qualifying wages such as any employer-paid and related health insurance costs or benefit costs. Then multiply these figures by either 50% (for credits claimed in 2020) or 70% (for credits claimed in January through September 2021).
Don’t forget that you have until April 15th, 2024 and April 15th, 2025, to claim this valuable tax credit that could provide much-needed relief for businesses impacted by COVID-19 disruptions.
Eligibility Requirements to Claim The Employee Retention Credit
To learn about the eligibility requirements for claiming the Employee Retention Credit, including criteria for employment and how COVID-19 impacts eligibility, continue reading.
Criteria For Employment
To qualify for the Employee Retention Credit, employers must meet certain criteria concerning their workforce. Specifically, they need to maintain a consistent number of full-time employees throughout the covered period of the program.
Full-time employees work an average of 30 hours or more per week. Part-time and seasonal workers do not count towards this requirement.
For instance, if a small business owner could keep all their full-time staff employed during a difficult financial quarter that resulted from COVID-19 disruptions, it is more likely that they would be eligible for the credit.
On the other hand, another business owner who had to let go of several full-time employees due to financial constraints may not have fewer full time employees to be eligible.
Impact of COVID-19 on Eligibility
The COVID-19 pandemic has significantly impacted the eligibility requirements for claiming Employee Retention Credit. To qualify, businesses must have experienced a full or partial suspension of operations due to government orders related to COVID-19 or have experienced a significant decline in revenue.
Additionally, there are special rules for eligible employers who started operating after February 15th, 2020. These businesses may use either their actual gross receipts reduction from January and February of that year as a reference point, or they may elect to utilize the safe harbor rule, which states that if gross receipts during any quarter beginning after March 12th, 2020, were less than ten percent of what they were during that same calendar quarter, back in 2019 then the business can treat all wages paid during those quarters as qualified wages.
Importance of Claiming the ERC on Time
It is important for businesses to timely claim the Employee Retention Credit to avoid missing out on potential tax savings and facing late filing penalties.
Deadlines For Claiming The ERC
It is important to note that businesses must claim the Employee Retention Credit on time to take advantage of this valuable tax credit. Here are some important deadlines to remember:
1. The deadline for claiming the credit is April 15th, 2024 for the 2020 tax year, and April 15th, 2025 for the 2021 tax year. This means businesses have until this date to file their Form 941 or amended payroll tax returns to claim the credit.
2. Businesses have three years after the program ends to review wages paid from March 12th. For example, if a business wishes to claim the credit for wages paid in 2020 and misses the deadline, it can still file an amended return up to April 15th, 2024 for the 2020 tax year.
3. Employers may file Form 941-X up to three years after the original payroll taxes were due. This allows businesses who missed claiming the credit after tax amounts for previous quarters another opportunity to do so.
4. It takes approximately nine months to receive a refund from the IRS after filing an amended Form 941-X. Therefore, businesses should plan accordingly when filing for previous, third, and fourth quarters’ ERC claims.
Remember, retroactive credit filing is still possible if eligibility requirements are met.
Late Filing Penalties
It is critical for small to medium-sized business owners to claim the Employee Retention Credit (ERC) on time to avoid incurring late filing penalties. The IRS imposes a penalty of up to 10% of the total credit amount if employers fail to file their payroll tax returns by the due date.
For instance, if an eligible employer fails to claim $100,000 in ERC credits, they may have less liquidity when needed. Avoiding these penalties and receiving timely payments requires accurate record-keeping and prompt filing of Form 941 with the required documentation.
COVID-19 Deadline Extensions For The Employee Retention Credit
Businesses should be aware of the COVID-19 deadline extensions for the Employee Retention Credit, including new deadlines in 2021 and criteria for eligibility, to avoid late filing penalties and ensure they claim the credit on time.
Explanation of Deadline Extensions
It’s important to note that the original deadline for claiming the Employee Retention Credit was March 31st, 2021. However, due to COVID-19 related disruptions, the IRS has extended the deadline for eligible employers until December 31st, 2021.
This means businesses have additional time to claim retroactive credits for previous quarters in which they were eligible. Furthermore, if you miss this deadline, all hope your payroll tax credit is not lost – you may still be able to file amended returns and claim the credit up to three years after payroll taxes were originally due.
Criteria For Eligibility
To be eligible for the Employee Retention Credit, businesses must meet certain criteria, including having experienced a significant decline in gross receipts or being fully or partially suspended due to COVID-19.
Additionally, businesses must have fewer than 500 employees and be able to prove that they paid employees qualified wages during the specified period. Qualified wages include employees not providing services due to business suspension, reduced hours/workforce, and health insurance costs.
Updated Deadlines In 2021, 2022, 2023, 2024, and 2025
Update: Most current updated deadlines are April 15th, 2024 for the 2020 tax year, and April 15th, 2025 for the 2021 tax year.
The government has extended and adjusted deadlines for claiming Employee Retention Credit in response to the pandemic. Here are some new deadlines to keep in mind:
1. Employers have until August 2nd, 2021, to claim the credit on Form 941 for wages paid between January and March 2021.
2. For the second quarter of 2021 (April through June), employers can take an advance payment of up to 70% of their estimated credit amount by filing Form 7200 by July 31st1, 2021.
3. The deadline for filing amended payroll tax returns (Form 941-X) to claim missed credits is now five years from the due date of the original return or its actual filing date, whichever is later.
4. Starting with the third quarter of 2021 (July through September), employers can only claim the credit if they experienced a decline in gross receipts of more than half compared to the same quarter in 2019.
Small to medium-sized business owners must stay current on these deadlines and requirements to maximize their eligibility for this valuable credit.
Timeframe To Claim The Employee Retention Credit
Businesses can claim the Employee Retention Credit quarterly through Form 941 or as part of their annual tax return, but before the March 12th, 2023 deadline to avoid late filing penalties – read on to learn more about the necessary timeframes and how to properly claim your credit!
Quarterly Filing Deadlines
To claim the credit, employers who qualify for the Employee Retention Credit must file Form 941, Employer’s Quarterly Federal Tax Return. The deadlines for filing Form 941 are April 30th, July 31st, October 31st, and January 31st of the following year. Submit Form 941 by the deadline, or you may face late-filing penalties. Remember that if your business is eligible for a refundable credit amount that exceeds your payroll tax liabilities, you can still apply for the refundable payroll tax credit even if you have not paid any payroll taxes. Additionally, employers can file an amended Form 941-X within three years after filing the original employment tax return to claim missed credits or correct errors in prior quarters. Remember that it takes approximately nine months to receive a full, fully refundable tax credit from the IRS after filing an amended Form 941-X. Closely monitoring deadlines and staying organized with your quarterly filings can help ensure your business receives all eligible Employee Retention Credits promptly.
Annual Tax Return Filing
In addition to quarterly filing deadlines, businesses can also claim the Employee Retention Credit on their annual tax return. As long as a business is eligible for the employee retention tax credit, they can claim it on their Form 941 or 944 payroll tax returns.
The credit will then be reconciled against the total taxes owed at year-end.
It’s important to note that even if a business did not have any employment tax deposits during a quarter eligible for the ERC, they should still file Form 941 to take advantage of the credit.
This will allow them to request an advance credit payment or get a refund when filing their annual income tax return.
Updates To The Employee Retention Credit In 2021
In 2021, there were changes to the Employee Retention Credit, which extended the credit through December 31st1, 2021, adjusted qualification criteria, and introduced new credit calculation rules.
Extension of Credit Through 2021
The Employee Retention Credit (ERC) has been extended beyond its original deadline at the end of 2020. As part of the Consolidated Appropriations Act, signed into law in December 2020, businesses can claim the credit for wages paid through June 30th, 2021.
In addition, as part of the American Rescue Plan Act signed in March 2021, this credit has been extended until December 31st, allowing eligible employers to continue claiming it throughout the year.
Adjustments to Qualification Criteria
The Employee Retention Credit qualification criteria have been adjusted for businesses seeking to claim the credit in 2021. The American Rescue Plan Act made modifications, including allowing startups to qualify for the credit and lowering the threshold of reduced gross receipts required to be eligible.
Under this new provision, a startup business (operating no earlier than February 15th, 2020) could claim up to $10,000 in tax credits per employee each quarter if they meet eligibility requirements.
Additionally, small businesses with gross receipts that declined by more than 20% (previously more than 50%) compared to the same quarter in 2019 can now claim the ERC.
New Credit Calculation Rules
In 2021, the Employee Retention Credit changed its calculation rules. Before, employers could only count up to $10,000 per employee in qualified wages for all quarters combined.
However, under new rules, eligible employers can now claim a credit of up to 70% of an employee’s qualified wages paid during each quarter of 2021. This means that businesses can potentially receive significantly higher tax credits than before.
Additionally, the gross receipts test threshold has been lowered from a decline of 50% to just 20%, making it easier for small to medium-sized businesses to qualify for the credit.
Qualifying For a Refund For Previous Quarters
Businesses can claim the Employee Retention Credit for overpaid payroll taxes in previous quarters by filing amended returns for 2020, with Form 941-X up to three years after the original payroll taxes were due.
Claiming The Credit For Overpaid Payroll Taxes
If you overpaid payroll taxes and want to claim the Employee Retention Credit (ERC), you can receive a refund for the excess amount. To do this, employers can reduce their next employment tax deposits or file an amended payroll tax return using Form 941-X.
This form allows businesses to adjust employment tax returns from previous quarters and apply any excess funds toward future payments or request a refund. However, it’s important to note that it takes approximately nine months to receive a refund from the IRS after filing an amended Form 941-X.
Filing Amended Returns For 2020
If your business already filed its 2020 payroll tax returns and did not claim the Employee Retention Credit, it is still possible to do so by filing an amended Form 941-X. Here are the steps to follow:
1. Complete Form 941-X: Download and complete Form 941-X, which is used to correct errors on previously filed Forms 941.
2. Calculate the credit: Recalculate your quarterly tax liability for each quarter you qualify for the credit by including any qualified wages paid during that same calendar quarter only.
3. Fill out necessary sections: Complete each section of Form 941-X that pertains to the Employee Retention Credit, including why you are correcting.
4. Explain reimbursement: If you already deposited taxes for a given quarter but request a refund based on the credit, explain how you want to be reimbursed (i.e., by check or applied to future taxes).
5. Submit corrected forms: Submit all corrected Forms 941 along with Form 941-X to the appropriate IRS office using certified mail with the return receipt requested.
It’s important to note that businesses have up to three years after payroll taxes were due for a given quarter to file amended returns claiming the credit. Also, note that it takes approximately nine months to receive a refund from the IRS after filing an amended Form 941-X.
How To Properly Claim The Employee Retention Credit
To properly claim the Employee Retention Credit, businesses should file Form 941 and include all required documentation, ensuring that they have met the eligibility requirements and understand their tax responsibilities as an employer.
Filing Form 941
To claim the Employee Retention Credit, eligible employers must file Form 941, the employer’s federal tax return. The form reports income taxes, Social Security tax, and Medicare tax withheld from eligible employees’ paychecks.
Employers can claim the credit on their fourth-quarter Form 941 for wages paid between October 1st and December 31st of that year. They may also file amended returns for qualifying wages paid in previous quarters to claim missed credits.
It’s essential to ensure that all required documentation is attached when filing a request for an Employee Retention Credit through Form 941. This includes supporting documents such as proof of gross receipts or a fully or partially suspended business due to COVID-19 restrictions or government orders.
Required Documentation
To properly claim the Employee Retention Credit, employers must provide the required documentation to the IRS. Here are the documents that businesses need:
1. Quarterly tax returns – Employers must file Form 941, Employer’s Quarterly Federal Tax Return, for each quarter they wish to claim the credit.
2. Documentation of eligibility – Businesses must demonstrate that they meet the eligibility requirements for claiming the credit, including evidence of a substantial decline in annual gross receipts or suspension of business operations due to COVID-19.
3. Calculating qualified employee wages – Employers must accurately calculate their qualified wages and provide supporting documentation.
4. Proof of health plan expenses – If employers included health plan expenses in their computations for the credit, they must also provide documentation to support those amounts.
5. Payroll records – Employers should keep detailed payroll records with information related to employee hours worked, wages paid, and other relevant data.
6. Amended payroll tax returns – If requesting a refund for previous quarters through an amended payroll tax return, employers should include all necessary forms, schedules, and supporting documentation to back up any changes made.
Properly documenting eligibility and ensuring accurate calculations can help avoid penalties and increase the likelihood of receiving a refund for qualified wages under the Employee Retention Credit program.
Employer’s Tax Responsibilities
As an employer claiming the Employee Retention Credit, it’s important to understand your tax responsibilities. First, you must report the claimed employee retention credit on your employment tax returns filed with the IRS.
This includes Form 941 for quarterly payroll taxes paid and Form 943 for agricultural employers.
In addition, if you received an advance credit payment from the IRS, you need to reconcile it on Form 941 when claiming the actual credit.
Finally, be aware that any amount of Employee Retention Credit claimed will reduce any deductible expenses related to those wages on your annual income tax return.
IRS Resources For Assistance With Claiming The Credit
The IRS offers FAQs, an application process, and professional tax advisors as resources to assist with claiming the Employee Retention Credit; learn more by visiting their website.
FAQs For ERC
You may have questions about the Employee Retention Credit as a small to medium-sized business owner. Here are some FAQs to help you:
1. What is the Employee Retention Credit?
– The Employee Retention Credit is a refundable tax credit designed to encourage eligible employers to retain employees during COVID-19 related shutdowns.
2. Who is eligible for the credit?
– Eligible employers include those whose business was fully or partially suspended due to COVID-19 or those whose gross receipts declined by more than 20% compared to the same quarter in 2019.
3. How much is the credit worth?
– The credit is worth up to 70% of qualified wages paid from January 1st, 2021, through September 30th, 2021, up to $28,000 per employee.
4. How do I claim the credit?
– You can claim the credit on your employment tax return using Form 941. If you don’t have payroll taxes to cover the credit, you can request an advance payment from the IRS using Form 7200.
5. Can I claim the Employee Retention Credit and the Paycheck Protection Program (PPP) loan?
– Yes, but you cannot use PPP funds for wages to make payroll costs or calculate the ERC.
6. Is there a deadline for claiming the credit?
– Yes, March 12th, 2023, is the deadline for claiming any ERC not claimed on a timely filed quarterly employment tax return.
7. Can I retroactively claim the Employee Retention Credit?
– Yes, businesses can still retroactively file for previous quarters if they meet eligibility requirements and file amended returns within three years after their original returns were filed or two years after they paid the tax due on their original returns.
Remember that claiming Employee Retention Credit requires understanding various criteria and deadlines set out by IRS guidelines. It’s always important to consult with a professional tax advisor or accountant.
IRS Application Process
To claim the Employee Retention Credit, eligible employers must file Form 941 for each quarter they wish to apply. The form includes a section that allows businesses to claim the employer retention tax credit and reduce their employment tax deposits in real time.
Although the credit is refundable, many businesses choose this option to improve their cash flow throughout the year.
In the past, to receive an advance payment of the ERC, employers had to use Form 7200. This form allowed them to request a credit against future payroll taxes rather than waiting until they file their annual tax return.
Currently, you must use IRS Form 941-X for each eligible quarter in order to claim the tax credit.
Professional Tax Advisors And Resources
Seeking professional advice from tax advisors like DIsaster Loan Advisors can be incredibly helpful when claiming the Employee Retention Credit. Tax professionals, including CPAs and attorneys, can help identify certain nuances in eligibility requirements that a business may miss independently.
In addition to consulting with a professional tax advisor, various resources are available through the IRS that businesses can use for assistance when claiming credit.
The IRS provides numerous FAQs about ERC on its website and an application process for those who meet specific criteria for requesting advance credit payments.
Conclusion and Summary on How Long Do You Have To Claim The Employee Retention Credit?
The Employee Retention Credit (ERC) has been a vital source of relief for numerous businesses struggling during the pandemic. Those who meet the eligibility criteria and apply for the ERC have the opportunity to obtain significant tax credit amounts, which can alleviate the economic burden of keeping employees during a difficult time.
While the time frame to claim the ERC has expanded, businesses must act promptly to apply for the credit before it’s too late, since the deadline for claiming the ERC is fast approaching.
This means that businesses have a narrow window of opportunity to claim the credit, so they must act fast to get the most out of the ERC. Moreover, the massive potential refunds and credits available through the ERC have been overlooked by many businesses, including those who could have qualified for them. It’s crucial for businesses to review their options, so they don’t miss out on the benefits of the ERC.
In conclusion, the employee retention credit has provided much-needed assistance to businesses coping with the hardship of the pandemic. The extended time frame to file and claim the ERC can give businesses a considerable boost in terms of getting substantial tax credits. However, businesses must act quickly to claim the credit before the year-end deadline. Therefore, it’s essential for businesses to take advantage of the opportunity and couldn’t afford to ignore the benefits of the ERC.
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.
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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.
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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- 941-X: 16. Qualified Small Business Payroll Tax Credit for Increasing Research Activities, Form Instructions (updated 2024) - April 28, 2024
- 941-X: 15. Tax Adjustments, Form Instructions (2024 updates) - April 27, 2024