What Is Employee Retention Credit ERTC (aka “ERC”)?

The Employee Retention Credit is a refundable payroll tax credit introduced during the COVID-19 pandemic as a business disaster relief measure to encourage small businesses to retain employees. Similar to EIR and BPR credits, this relief applies against taxes paid on wages of qualified workers by employers.

Small businesses may qualify for up to $150,000 of ERTC in any given year, which will depend on the number of full-time and part-time workers they employ. This credit may be claimed retroactively over any three year period affected by COVID-19; furthermore, all employers (such as governments, churches and religious organizations, or non-profits) can claim it.

PPP loans were only forgivable if small businesses spent them on payroll; in contrast, the ERC is fully refundable; however, original ERTC legislation seen here – https://crsreports.congress.gov/product/pdf/IN/IN11819 – prohibited businesses that had taken out PPP loans from also claiming ERC. However, with the passage of the 2020 Taxpayer Certainty and Disaster Relief Act this restriction has been lifted allowing any such businesses to claim both simultaneously.

Small businesses find the ERTC an invaluable asset, yet navigating its requirements and paperwork can be complicated. Therefore, working with an experienced team focused on ERC program legislation changes is highly recommended to ensure all requirements are met and to help secure maximum credit value for each credit received.

Filing for ERC with an inexperienced provider could result in errors that cost your business either refunds or penalties for filing incorrectly. Also beware of third parties offering advice that allows businesses to claim ERTC without proper documentation – these claims haven’t been approved by the IRS and could put your business at risk of audit.

How does the ERC work?

If your business qualifies for the Earned Revenue Credits (ERCs), amend tax returns for 2020 and 2021 in order to receive your refund. As this can be a complex accounting process that requires knowledge of both federal tax law and ERTC programs, working with an expert tax firm on this topic would likely be best.

Collaboration with an ERC specialist will ensure your company receives its full value of ERTC credits while meeting compliance requirements. This involves maintaining detailed documentation – something companies on Workplace Trends can do for you. These companies are using up-to-date software solutions that allow for accurate identification if eligible, claim maximum amounts, and ensure payroll tracking.

Selecting a partner who understands COVID relief policy and regulations can be key to your business’s success. Inexperienced providers could miss opportunities or make errors that would cost your business part (or all) of its available credit. Professional ERC experts are nationally recognized as COVID relief policy thought leaders and are uniquely equipped to maximize benefits within IRS regulations and guidelines.

The ERTC is an incredible COVID relief initiative, helping keep jobs in America while making it easier for small businesses to remain open during challenging times. However, with so much at stake and potential pitfalls to avoid, it can be easy for businesses to become overwhelmed with details and mishandle the process; that is why working with an experienced partner who can manage all aspects of your ERTC claim allows you to focus on running your business rather than on ERC paperwork.

How Can I Claim the ERC/ERTC?

To be eligible for the ERC, your company must have experienced a drop in gross receipts of 50% or greater during a quarter post-COVID-19 outbreak, as measured by revenue analysis. If uncertain as to your company’s eligibility for this scheme, working with an outside service firm is advised and can guide through the application and proof process with the IRS.

This service firm will assist with effortless data gathering (such as providing you with a portal to upload 941 returns, PPP loan documents and raw payroll data), credit calculation to establish exactly the ERC you qualify for from the IRS and help amending returns for specific years. However, any amounts received must be recorded as taxable income in accounting records and reported as reduction in wage expense deduction.

ERC reimbursements are available only to businesses that qualify based on revenue decline during the COVID-19 pandemic, not those taking out Paycheck Protection Program loans as their loans were forgiven; however, due to recent laws they can now retroactively apply through filing 941-X for this benefit.

As can be seen, ERC refunds can provide significant financial relief during these trying times for your company. While the process may be complex and time consuming, consulting with a professional advisor to navigate its complexities will maximize the potential refund amount.

How Much Can I Claim?

Filing Form 941-X, Amended Quarterly Payroll Tax Return with the IRS allows you to retroactively apply for the Employer Recovery Tax Credit (ERTC). This refundable tax credit has proven invaluable for businesses impacted by COVID-19 pandemic as it provides significant cash refunds that help get them back on their feet financially.

Your ability to claim an ERTC depends on several factors, including business size and industry, industry certification status of employees and duration of operations. To find out if you qualify, consult an experienced tax incentives advisor who will be able to calculate eligibility as well as guide through the application process for an ERTC grant.

While the initial announcement from the government indicated that you could not apply for ERC if you received funds through Paycheck Protection Program (PPP), a change to bill passed during Consolidated Appropriations Act 2021 allowed eligible businesses that took out PPP loans to retroactively apply for ERC. Every action a business can take to collect money back on their taxes should be investigated and partaken in.