As a small business owner, do you still have time to file for the ERC tax credit?
The Employee Retention Credit (ERC) was introduced in the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help businesses affected by the pandemic and keep their employees on the payroll.
The ERC credit was extended and expanded under the Consolidated Appropriations Act, 2021, and the American Rescue Plan Act, 2021, allowing more businesses to qualify and receive larger benefits. However, with the country gradually recovering from the pandemic, many are wondering: when does the employee retention credit end?
Key ERC Takeaways:
- The ERC was extended by the CAA in December 2020, and further expanded under the ARPA in March 2021.
- Employers should consult with ERTC tax professionals such as DIsaster Loan Advisors to determine eligibility and ensure compliance with filing procedures.
- April 2024 (for the 2020 ERC credit tax year) and April 2025 (for the 2021 ERC credit tax year) are the respective deadlines.
By understanding the deadline and the options available to claim the ERC, employers can take advantage of this valuable credit to help offset the economic effects of the pandemic.
If you have not already filed, you can still claim the employee retention credit retroactively in 2023, 2024, and 2025.
Overview of The Employee Retention Credit (ERC)
The Employee Retention Credit (ERC) is a valuable financial lifeline for small to medium-sized businesses, providing a refundable tax credit against certain employment taxes.
In essence, the ERC allows qualifying businesses to receive a credit of up to 50% of qualified wages paid to employees, up to a maximum amount per worker. This includes not only salaries but also employer-paid health benefits.
For example, if an eligible business paid $10,000 in qualified wages and health benefits per employee during the applicable period, it could claim an ERC worth $5,000 per employee.
Eligibility Criteria And Requirements for ERC
To determine if your small to medium-sized business is eligible for the Employee Retention Credit (ERC), refer to the following eligibility criteria and requirements:
1. Business Experience: Your business must have experienced either a full or partial suspension of operations due to a government order related to COVID-19 or a significant decline in gross receipts compared to the same calendar third quarter in 2019.
2. Gross Receipts Decline: A significant decline refers to a reduction of more than 50% in the case of 2020 and more than 20% for 2021 when comparing quarterly gross receipts.
3. Recovery Startup Businesses: If your business began operating after February 15th, 2020, you might still be eligible for the ERC under the Recovery Startup Business category, provided your average annual gross receipts do not exceed $1 million.
4. Employment Tax Deposits: You must have employment tax deposits available against which you can claim the ERC.
5. Qualified Wages: Eligible businesses can claim a credit only on qualified employee wages. This includes any health insurance costs paid by the employee wages to the employer on behalf of the employee.
6. PPP Loan Recipients: If your business received a Paycheck Protection Program (PPP) loan, you cannot claim the ERC on wages that were paid using funds from that loan.
By ensuring compliance with these criteria and requirements, eligible small to medium-sized businesses can effectively take advantage of this relief program to mitigate financial strains caused by COVID-19 while promoting employee retention during uncertain times.
Claiming Process And Benefits For Businesses
Claiming the Employee Retention Credit (ERC) offers substantial financial benefits for eligible businesses, helping them maintain their workforce and stay afloat during challenging times.
To claim this refundable tax credit, employers must report their total qualified wages and associated health insurance costs on their quarterly employment tax returns.
By successfully claiming the ERC, businesses can offset payroll costs and ease liquidity concerns while navigating economic uncertainty. For example, an eligible employer with $100,000 in qualified wages could receive a credit of up to $50,000 – significantly reducing their employment tax burdens.
In addition to providing immediate cash flow relief, claiming this credit allows companies more flexibility in maintaining or expanding operations while prioritizing employee retention.
History of The ERC
The ERC was launched as part of the CARES Act in March 2020 and has undergone several changes, extensions, and modifications to include more eligible employers and increase credit amounts.
Launch And Initial Eligibility
The Employee Retention Credit (ERC) was launched in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help businesses affected by the pandemic.
Under the original program guidelines, eligible employers could claim a refundable tax credit equal to 50% of qualified wages paid between March 13th and December 31st, 2020.
To qualify for the ERC, businesses had to meet specific criteria for their operations’ financial impact due to COVID-19. These included experiencing significant declines in gross receipts or government-mandated shutdowns that led them to be unable to operate fully.
Changes And Extensions
The Employee Retention Credit has undergone several changes and extensions since its launch. Here are some highlights:
1. The Consolidated Appropriations Act of 2021 extended the credit through June 30th, 2021.
2. The American Rescue Plan Act extended the credit further to cover wages paid through December 31st, 2021.
3. The maximum credit amount increased from $5,000 per employee in 2020 to $7,000 per employee in 2021.
4. Eligibility criteria were expanded to include recovery startup businesses and severely financially distressed employers with at least 90% gross receipts declines.
5. Interaction with PPP loans was clarified, allowing eligible businesses to claim both credits as long as they didn’t overlap.
These changes and extensions have made the ERC more accessible and beneficial for eligible businesses impacted by COVID-19. Stay informed on updates and consult with tax experts to maximize your credit potential.
Deadlines For Claiming The ERC
Businesses have until December 31st, 2021, to claim the ERTC for qualified wages paid between March 13th, 2020, through December.
Original Deadlines And Extensions
The Employee Retention Credit has gone through various deadlines and extensions since its inception, enabling employers to claim the credit for longer periods. The following table outlines the key original deadlines and extensions made to the ERC program:
|March 13, 2020 – Dec. 31, 2020||December 31, 2020||None|
|Jan. 1, 2021 – June 30, 2021||June 30, 2021||September 30, 2021 (for most businesses)|
|July 1, 2021 – September 30, 2021||September 30, 2021||December 31, 2021 (for certain businesses)|
|Claiming the ERTC||N/A||July 31, October 31, and December 31, 2021|
|Amending previous forms||N/A||March 12, 2023|
Small to medium-sized business owners should stay informed about these deadlines and extensions to ensure they can benefit from the Employee Retention Credit and support their workforce during uncertain times.
September 30th, 2021, Deadline
For most eligible businesses, the deadline for claiming the Employee Retention Credit (ERC) ended on September 30th, 2021. If you didn’t claim this refundable tax credit on wages paid to employees before this date, you might have lost out on valuable savings.
It’s important to note that certain employers may still be able to claim the ERC until December 31st of this year. Suppose your business was fully or partially suspended due to a government order during a quarter in 2020 or 2021 and experienced a significant decline in sales or gross receipts compared to the prior-year quarter. In that case, you may be eligible for an extended deadline.
Updated ERC Deadline And Consequences
The original deadline for most businesses to claim the Employee Retention Credit (ERC) was September 30th, 2021. However, an updated ERC deadline has been announced to allow eligible businesses until December 31st, 2021, to pay and claim the credit.
It’s important to note that missing these deadlines can have serious consequences for businesses as they may be ineligible for the credit if they fail to act in time. Therefore, business owners must consult with tax experts and stay informed of updates and changes regarding ERC claims.
How To Calculate The ERC
To learn more about how the ERC is calculated, including maximum credit amounts and qualified wages, keep reading on.
Overview of ERC Calculation
The Employee Retention Credit is calculated as a percentage of qualified wages an eligible employer pays. For 2021, the claimed employee retention credit amount was equal to 70% of up to $10,000 in qualified wages per quarter or a maximum of $28,000 per employee for the year.
Employers can consider cash and non-cash compensation, such as health benefits, to determine qualified wages. Employers must also consider any other COVID-19 relief credits already claimed when calculating their ERC eligibility and credit amounts.
Maximum ERC Credit Amount
The maximum credit amount for the Employee Retention Credit (ERC) is 50% of qualified wages paid to eligible employees. This means businesses can receive employee retention tax credits of up to $5,000 per employee for wages paid in 2020 and up to $28,000 per employee for wages paid from January 1st through December 31st, 2021. The credit cannot exceed the employer’s share of Social Security or Medicare taxes withheld during the calendar quarter. However, any excess can be carried forward to future quarters or refunded if all tax liabilities are met.
In addition to including eligible wages under the CARES Act and Consolidated Appropriations Act passed by Congress last year as part of their COVID-19 response efforts, adjustments have been made under The American Rescue Plan Act (ARPA).
Under this plan, employers with less than five hundred full-time employees may treat all wages as qualifying wages subject only to limitation based on date and amount instead of reduced gross receipts test threshold calculations required prior years qualification requirements provided they were not a government entity or excluded by other sections defined in law making them ineligible. Employers who had already received PPP loans were previously barred from claiming the ERC; however, this ban has been removed by ARPA passing, which now allows employers who had taken out PPP loans earlier can claim both credits when following new rules set forth by Internal Revenue Services (IRS).
Qualified Wages And Thresholds
Understanding the qualified wages and thresholds for Employee Retention Credit is vital for small to medium-sized business owners to maximize their benefits. The following table provides an overview of the wage qualifications and thresholds that vary depending on the organization’s size and the credit claim period.
|Size of Organization||Claim Period||Qualified Wages||Threshold|
|100 or fewer full-time employees||2020||All wages paid to employees, including health plan expenses.||Up to $10,000 per employee for the entire year.|
|2021||All wages paid to employees, including health plan expenses.||Up to $10,000 per employee per quarter.|
|More than 100 full-time employees||2020||Only wages paid to employees not providing services, including health plan expenses.||Up to $10,000 per employee for the entire year.|
|2021||Only wages paid to employees not providing services, including health plan expenses.||Up to $10,000 per employee per quarter.|
|More than 500 full-time employees||2021||Only wages paid to employees not providing services, including health plan expenses.||Up to $10,000 per employee per quarter.|
Before claiming the Employee Retention Credit, small to medium-sized business owners must review these qualified wage regulations and thresholds to correctly calculate and claim the appropriate employee retention tax credit amount.
Changes to ERC In 2021
In 2021, changes were made to the ERC that expanded eligibility criteria, increased the credit amount, and clarified its interaction with PPP loans – learn more about how these changes may benefit your business.
Updated Eligibility Criteria
To qualify for the Employee Retention Credit in 2021, businesses must meet several eligibility requirements. Here are some of the updated criteria:
1. Business size: Previously, eligible businesses had to have 100 or fewer full-time employees. The limit has increased to 500 or fewer full-time employees for wages paid after June 30th, 2021.
2. Gross receipts: Businesses must demonstrate a decline in gross receipts for a calendar quarter in 2020 or 2021 compared to the same quarter in 2019. Previously, businesses needed a decline of at least 50% in gross receipts. Now, they only need a decline of at least 20%.
3. Governmental orders: Businesses can also qualify for the credit if they experience a full or partial suspension of operations due to government orders limiting commerce, travel, or group meetings during the pandemic.
4. Startups: New businesses that began operating after February 15th, 2020, and have an average annual gross receipt of $1 million or less can claim the ERC up to $50,000 per quarter.
5. PPP loans: Businesses that received Paycheck Protection Program (PPP) loans may now be eligible for the ERC retroactively if they do not use the same wages for both credits.
These updates aim to help more businesses during this challenging time by expanding qualification requirements and increasing credit amounts.
Expanded Credit Amount
The Employee Retention Credit (ERC) has undergone several updates and expansions, with one significant update being the increase in credit amount. Initially, eligible businesses could receive a maximum credit of $5,000 per employee for 2020 wages.
However, this amount was increased to $14,000 per employee for 2021 wages under the Consolidated Appropriations Act passed in December 2020. This expansion also extended the eligibility criteria to include new businesses that began operating after February 15th, 2020, and employers experiencing a decline in quarterly gross receipts of at least 20%.
These changes are an excellent opportunity for small and medium-sized business owners to take advantage of the expanded credit amounts by hiring or retaining employees during these challenging times.
Interaction With PPP Loans
The Employee Retention Credit (ERC) can be a valuable resource for businesses struggling to retain employees during the pandemic. It’s important to note that if you received a Paycheck Protection Program (PPP) loan, you might still qualify for the ERC, but with some limitations.
For example, any wages used to calculate PPP forgiveness cannot also be used for ERC purposes. However, any wages paid outside the covered period or not included in PPP forgiveness calculations can still count towards your ERC claim.
Impacts of ERC Expiration
The expiration of the Employee Retention Credit can significantly impact businesses, including financial implications and effects on employee retention and hiring.
Financial Implications For Businesses
For businesses, the Employee Retention Credit (ERC) can significantly impact their bottom line. The credit allows eligible employers to receive up to $28,000 per employee in tax credits for wages paid between March 13th, 2020, and December 31st, 2021.
The financial benefits of the ERC are substantial for small and medium-sized businesses that have experienced significant declines in gross receipts or were forced to suspend operations due to COVID-19 related government orders.
It provides much-needed cash flow relief during difficult times and encourages employers to retain employees and continue paying wages.
It’s important for eligible businesses not to miss out on this valuable program before its expiration date of December 31st, 2021. Failure to claim the credit by this deadline could result in missed opportunities for significant savings that could benefit business owners and employees.
Effects on Employee Retention And Hiring
The Employee Retention Credit can significantly impact employee retention and hiring for eligible businesses. By reducing taxes and providing financial relief, the employer retention tax credit could allow businesses to retain employees who might otherwise be let go due to economic hardship.
For example, a small business struggling with reduced revenue during the pandemic may use the credit to keep its current staff employed while still having enough resources for other expenses.
Overall, properly utilizing the Employee Retention Credit could help individual businesses and contribute to infrastructure investment and jobs positively to broader economic recovery efforts by supporting sustainable employment practices.
Alternatives to The ERC
In addition to the ERC, small to medium-sized businesses may consider alternative options such as the Paycheck Protection Program (PPP) or Work Opportunity Tax Credit (WOTC) for financial relief.
Paycheck Protection Program (PPP)
Another alternative to the Employee Retention Credit for businesses impacted by the pandemic is the Paycheck Protection Program (PPP). The PPP provides small businesses with forgivable loans to cover eligible expenses like payroll costs, rent, and utilities.
It’s important to note that businesses cannot claim the PPP and ERC for the same wages. However, if a business received a PPP loan but did not use all of it on payroll costs, they may still be able to claim some amount of ERC for those wages.
Work Opportunity Tax Credit (WOTC)
Another option for businesses is the Work Opportunity Tax Credit (WOTC). It’s a federal tax credit available to employers who hire individuals from targeted groups facing significant employment barriers.
These include veterans, people with disabilities, those on government assistance programs, and ex-felons. The credit ranges from $1,200 to $9,600 per employee and can significantly reduce an employer’s tax liability.
To claim the WOTC, employers must complete IRS Form 8850 within 28 days of an eligible employee’s start date and submit it with their annual tax return.
Tips For Maximizing The ERC
To make the most of the Employee Retention Credit, it’s important to seek guidance from tax experts, stay informed on updates and changes, and keep proper documentation – find out more about how you can leverage this valuable credit by reading through our tips for maximizing the ERC.
Consulting With Tax Experts
To ensure that you are maximizing your use of the Employee Retention Credit (ERC), it’s essential to seek guidance from tax experts. While ERC can be a significant financial benefit for businesses, navigating its various requirements and accounting procedures can be challenging.
A tax expert can help determine if your organization is eligible, assist in calculating the credit amount owed, and manage any documentation or record-keeping necessary for claiming an ERC refundable payroll tax credit.
With deadlines for claiming the ERC varying depending on individual situations and eligibility criteria, consulting with knowledgeable professionals can aid in avoiding penalties or missed opportunities.
Staying Informed On Updates And Changes
As with any government program, updates and changes to the Employee Retention Credit (ERC) will likely occur over time. It is essential for small to medium-sized business owners to stay informed about any modifications that could affect their eligibility or benefits under the ERC.
To ensure you don’t miss out on potential tax credits, it’s important to consult with tax experts who can help you navigate complex regulations surrounding the ERC. Additionally, keeping up with news related to COVID-19 legislation can help keep business owners aware of new opportunities for economic relief.
Proper Documentation and Record-Keeping
To take advantage of the Employee Retention Credit (ERC), Small to Medium-Sized Business Owners need to keep proper documentation and records throughout the claiming process.
Timely and accurate record-keeping reduces the risk of rejection or delays in receiving credit payments. Employers should maintain a documented methodology for calculating ERC, including eligible wages and applicable periods, as well as any required supporting payroll data and tax forms.
Good record-keeping can also help when handling audits or compliance reviews from relevant authorities. For instance, employers need to maintain documentation on their employee headcounts, gross receipts numbers, and applicable quarters during which they implemented ERC claims.
Employers who fail to produce proper documentation may miss out on significant benefits associated with the ERTC program or face penalties for non-compliance issues from regulators later.
The Future of The ERC
What are the prospects for further extensions or revisions to the Employee Retention Credit, and how could this impact businesses and employees? Find out more about this critical issue in our comprehensive guide.
Prospects For Further Extensions or Revisions
The Employee Retention Credit (ERC) has been extended several times since its launch in 2020. The ERC credit has fully ended on December 31st, 2021. However, eligible businesses can still retroactively claim the credit up until April 2024 (for the 2020 ERC credit tax year) and April 2025 (for the 2021 ERC credit tax year) respectively.
The American Rescue Plan Act recently expanded eligibility for the ERC to include new startups and severely financially distressed employers with larger credit amounts available in certain cases.
Potential Impact on Businesses And Employees
The expiration of the Employee Retention Credit (ERC) can significantly impact both businesses and employees. Without this credit, eligible employers may face financial difficulties as they struggle to retain their workforce during challenging times.
In addition, businesses that rely heavily on the ERC may need to explore alternative funding sources or adjust their budgets accordingly. This could mean cutting back on certain expenses or finding new revenue streams to compensate for the loss of credits.
Overall, it’s important for employers to carefully consider how the expiration of the ERC will affect their business operations and take steps to mitigate any negative consequences by exploring alternative funding sources or consulting with tax experts who can guide available options.
Conclusion and Summary Regarding When The Employee Retention Tax Credit Ends
In conclusion, the Employee Retention Credit has been a vital lifeline for many small to medium-sized businesses during the COVID-19 pandemic. While the deadline for claiming the employee retention credit work was initially extended until September 30th, 2021, some eligible businesses may still have until December 31st of this year to claim it.
Business owners must understand their eligibility criteria and requirements, calculate their maximum credit amounts accurately, and consider other alternatives like PPP loans or WOTC credits when applicable.
Eligible companies, firms, and businesses have ample time to claim the credit. Again, they have until April 2024 (for the 2020 ERC credit tax year) and April 2025 (for the 2021 ERC credit tax year).
Recap of ERC Expiration And Important Considerations
As a small to medium-sized business owner, knowing about the Employee Retention Credit (ERC) expiration and its potential impact on your business is important. The ERC was initially slated to end on December 31st, 2020, but has since been extended until December 31st, 2021.
It’s crucial to note that employer eligibility requirements and wage thresholds have changed over time and can impact whether or not you qualify for the credit. Additionally, if you received Paycheck Protection Program (PPP) loans in addition to claiming the ERC, there may be additional considerations regarding double-dipping or offsets with payroll taxes.
Final Thoughts For Businesses
In conclusion, the Employee Retention Credit is a valuable tax incentive for eligible businesses looking to keep employees on their payroll. While the initial deadline was September 30th, 2021, certain businesses still have until December 31st, 2021, to pay and claim the credit.
Employers also have until April 2024 (for the 2020 ERC credit tax year) and April 2025 (for the 2021 ERC credit tax year), to amend previously submitted forms if they missed out earlier. Business owners must consult with tax experts and stay informed on updates and changes to maximize their benefits from this program.
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
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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.