Does My Business Qualify for the ERC Tax Credit?
Many families and businesses were placed in dire financial straits due to pandemic restrictions and closings. However, in light of the fiscal stresses on the business sector, many initiatives were enacted in an effort to heal the plight of small businesses.
Although not every family and business qualified for these programs, many found that they did qualify and were able to be assisted by these financial programs. If you or your business have yet to take advantage of these programs, now is the perfect time to do exactly that.
Prior to filing your business taxes this season, take a moment to review and familiarize yourself with some of these assistance programs. You may very well be eligible for tax credits, which could help restore the financial stability of your company. It’s certainly worth the time to take a look at the programs that are being offered by the government.
Congress created initiatives to offer financial aid to businesses when the COVID-19 outbreak broke out and prompted them to cease operations. The Employee Retention Credit (ERC) was one of these initiatives.
The ERC provides payroll tax credits to qualified companies for salaries and health coverage paid to employees. However, this program came to an end when the Act on Infrastructure Investment and Employment was enacted in November 2021.
Businesses continue to have the chance to submit ERC claims for a maximum of three years after the program has ended. There are ERC Tax Companies who can help you make sense of what your business qualifies for. Here is a summary of how the program operates and how to apply for funding for your company.
Describe the ERC
The ERC is a refundable employment tax credit established by the CARES Act, which first became accessible on March 13, 2020, to December 31, 2020. The ERC's main goal was to persuade firms to continue paying their workers during the epidemic.
Employers who met the requirements and borrowers who obtained a Paycheck Preservation Program credit were entitled to deduct up to 50% of eligible salaries, including eligible medical expenditures. The ERC was increased under the Consolidated Appropriations Act. Employers who met the requirements in 2021 are eligible for a 70% credit on qualifying earnings.
Who Can Apply for the ERC?
The period you are applying for determines your eligibility for the ERC.
You must have operated a company or tax-exempt entity that was either completely or partially shut down as a result of COVID-19 in order to be approved for 2020. Additionally, you must demonstrate that your sales significantly decreased from 2019 to below 50% of similar gross revenues.
You must demonstrate that your gross receipts fell by 80% compared to the same period in 2019 if you want to be eligible for 2021. You can contrast your revenue numbers to those from 2020 if you did not have a business in 2019.
Self-employed people are not allowed to submit an ERC claim for their salaries under the CARES Act. Additionally, you are not permitted to claim pay for any specific members of your family, but you are permitted to claim credit on the wages provided for employees.
Qualified Wages: What Are They?
Depending on the magnitude of your company and the number of employees you have, different amounts qualify as wages. Although there is no minimum size requirement to qualify for the ERC, small and large businesses are handled differently.
If you employed more than 100 full-time workers in 2019, you can only claim credits for the earnings of those that you retained but who were not working in 2020. If you employ less than 100 people, you may file a claim for each individual, whether they were employed or not.
The requirement was increased to 500 full-time staff members in 2019 for 2021, providing firms far more flexibility in who they may claim as recipients of credit. The tax credit can be calculated by including eligible health costs and any wages that are liable for FICA taxes.
The period from March 13, 2020, to September 30, 2021, must have seen the payment of this revenue. However, startup companies in recovery must apply for the credit before the end of year 2021.
How to Apply for a Tax Credit
Businesses have plenty of time to collect the ERC even if the program was terminated in 2021. Businesses should complete Form 941 to claim this credit for taxes when they file their federal tax returns.
Some companies, particularly those that took out Paycheck Protection Program loans in 2020, assumed they were not eligible for the ERC. You can belatedly apply for the ERC by completing the Adjusted Employer's Quarterly Federal Income Return if you have previously filed your income taxes but recently learned that you qualify for the ERC.
Many business owners may find it difficult to determine eligibility because the tax regulations governing the ERC have changed. Determining the earnings that qualify (https://www.federalregister.gov/documents/2018/07/20/2018-15495/definitions-of-qualified-matching-contributions-and-qualified-nonelective-contributions) and the ones that do not is also challenging.
If you run many enterprises, the procedure becomes considerably more challenging. Additionally, completing the IRS paperwork wrong might cause the entire procedure to be delayed.
It may be beneficial to speak with a tax professional if you are having trouble applying for the ERC. That person can make sure you are headed in the proper direction. To find out more, look at the IRS's list of commonly asked questions concerning the ERC.
