Small businesses were hit hard financially during the COVID-19 pandemic. To help businesses get back on their feet post-pandemic, the CARES Act established a refundable tax credit that could earn businesses up to $21,000 per employee. ERC is still available for small businesses to apply for. But, if your business qualifies, do not wait to apply. The wait time for approval could be longer than you expect.
What Is ERC?
ERC stands for Employee Retention Credit. It is a refundable tax credit that incentivized small businesses to keep employees on payroll during the pandemic. Established under the CARES Act, businesses who have not yet applied but are eligible can still apply until April 15, 2024 for the 2020 tax year and April 15, 2025 for the 2021 tax year. The amount businesses receive from ERC is dependent upon how many employees were kept on payroll during the pandemic in 2020.
Eligibility and Benefits for Small Businesses
Small businesses are the primary beneficiaries of the ERC tax credit. There are certain criteria that qualifies businesses to receive the ERC tax credit. All applications must make sure they fully qualify before applying or risk penalties from the IRS. Businesses who experienced a significant decline in gross receipts may be eligible for the tax credit. Businesses also qualify if they paid qualified wages to employees, as determined under the rules set by the IRS.
If qualified, businesses could earn a significant amount of money in the form of a refundable tax credit. When applying, the amount a business can receive is determined by the qualified wages paid to employees. This means that businesses could earn up to $21,000 per employee.
Making sure your business is fully eligible for the ERC tax credit is crucial before applying. The IRS has warned businesses of applying when they are not fully eligible. Some ERC mills claim to help businesses get approved with the IRS even when they do not qualify. For this reason, you should contact an experienced and qualified ERC specialist to help you complete and submit your application with the IRS. ERC specialists should be certified tax attorneys or tax consultants with experience handling IRS applications.
How to Claim the Employee Retention Credit
Claiming the ERC tax credit requires submitting an application to the IRS. Businesses will need to amend their 2020 or 2021 tax return with the IRS to receive the refundable credit. If businesses earn more from the ERC tax credit than they owe in taxes for that calendar year, the remaining funds will be sent to the business as a refund. ERC consultants are experienced in helping clients amend their tax returns and submit ERC applications to the IRS. They can ensure that you are providing accurate records and documentation that supports your eligibility for the tax credit. They can also help you calculate exactly how much you could earn from the tax credit.
The Impact of the Employee Retention Credit
The Employee Retention Credit has already helped hundreds of businesses across the U.S. recover financially from the pandemic. During the pandemic, government restrictions and regulations severely impacted businesses of all industries and sizes. Lockdowns and strict rules against allowing businesses to operate at full capacity meant that many businesses experienced declines in gross receipts.
Through the ERC tax credit, businesses were incentivized to keep their employees on payroll. This incentive was used to help the economy recover from the impact of the pandemic while helping workers who were unable to work for an uncertain time period during the pandemic. This tax credit is still available to business owners who have not yet applied until April 15, 2024 for the 2020 tax year and April 15, 2025 for the 2021 tax year.
