A temporary refundable payroll tax credit designed to help businesses recover from COVID-19 impacts. The CARES Act encourages businesses to keep employees on their payroll. This does not have to be paid back and is fully refundable even when taxes are not owed. For 2020, you can receive up to $5,000 per employee and up to $21,000 for 2021.
Any business in any industry that experienced a significant decline in sales or revenue when comparing a quarter from 2020 or 2021 to the same quarter in 2019. Or any business had to shut down for a period due to governmental orders.
A company with 20 employees can potentially be eligible for $500,000 in tax credits and refunds.
The IRS expects 70% - 80% of small and medium businesses (SBE) to qualify.
If your business experienced disruptions to commerce, travel, or group meetings, you qualify!
This includes; supply chain disruptions, price increases, staffing shortages, difficulty hiring, reduced hours, reduction in goods or services offered, inability to travel, or attend conventions.
Determining the proper amount that you’re entitled to is a complex accounting process. Although these are payroll tax credits and refunds, what you’ve paid in payroll tax has no bearing on your ERC calculations.
The refunds are based on many factors including qualifying quarters, number of employees, hours worked, wages paid and if applicable, PPP loans, group health premiums and participation in other government programs to name a few.
Calculate ERC for 2020:
For 2020, the ERTC credit is computed at a rate of approximately 50% of your employee’s qualified wages paid. This means that if you are an eligible business, you are able to claim up to $10,000 in eligible wages per employee in healthcare and wages for the entire year.
For 2020, there is a maximum credit of 50% of eligible wages or $5,000 per employee annually. If your business had less than one hundred full-time employees in 2019, the ERTC funding is available for all employees receiving wages in the fiscal year 2020.
Calculate ERC for 2021:
The credit available to claim for the 2021 ERTC fund program is different from in 2020. The credit is calculated at a rate of 70% of the employees’ qualified wages paid. This is still similar to 2020 in the aspect that you can claim up to $10,000 in eligible wages per eligible employee.
For 2021, there is a maximum credit of $7,000 per employee per quarter. The main difference between 2020 and 2021 is that you have the ability to claim up to $21,000 per employee for the first three quarters of the fiscal year. If you had less than five hundred full-time employees in 2019, you could use the credit for all eligible employees who received wages in 2021.
The Employee Retention tax credit can still be filed in 2022 for 2021 and 2020!
If your business recovered from a substantial decline in gross receipts and you did not claim the Employee Retention Tax Credit, you can claim it in 2022.
Businesses have until 2024 to calculate eligibility for wages paid after March 12, 2020.
You can qualify for the ERTC credit in two ways:
Employers who get PPP loans can apply for ERC under the Consolidated Appropriations Act. The wages you use for each program have to be different.
Employers who report payroll costs on a PPP application for forgiveness in 2020 aren't eligible for ERC. If you're getting PPP, you can get the Employee Retention Credit if:
See here for a more in depth look into the differences between PPPs and ERCs.
The ERC program was extended through December 2021. In November, however, Biden took back the 4th quarter allowance for general businesses. At this time no payroll is eligible after September 30, 2021 unless the business is considered a recovery startup.
To be considered a recovery start up a business must have commenced operations after February 15, 2020 and meet certain revenue thresholds.
If a business meets the 2 simple qualifications they automatically qualify for Q3 & Q4 2021. There are additional bills in congress pending to extend the program.
The IRS is generally taking up anywhere from 4-6 months to send refund checks to businesses. When 60 days lapses the IRS should send the businesses a letter requesting additional time.
The IRS pays interest on the additional time spent. We suggest that once you get to the 4 month point you call the IRS to provide a status update.
See here for the latest development on this.
The Employee Retention Credit (ERC) is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021 and 70% of the qualified wages paid during 2021.
The ERTC is a payroll tax credit or refund (not an income tax credit) that gives back to employers who retained their employees on payroll during the initial shutdowns of the covid-19 pandemic. It is ultimately to be reported on Form 941.
As of November 17, 2021, the IRS had approximately 2.4 million unprocessed Forms 941 (ERC) and 400,000 unprocessed Forms 941-X (ERC refund requests). Additionally, the IRS advised that they will be processing all Forms 941 before they process any of the corresponding Forms 941-X.
Keep in mind, too, that the IRS still has an unknown number of 2020 payroll refunds to process before getting to the 2021 requests.
ERC claimant businesses should plan for a turnaround time of four to six months.
To check the status of your refund, you can call the IRS at (877) 777-4778. However, because of a shortage of agents available to field phone calls, your “on hold” time may be exceptionally long. It may be more productive to visit the IRS website for additional covid-19 newsroom updates.