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How to Apply for the Employee Retention Credit

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Did you know that, technically, the Employee Retention Tax Credit ended September 30, 2021? Although, it ended for most businesses, some employers are still eligible to apply for the credit. We have put together this short guide to share more about how to claim the employee retention credit and who is eligible to apply. 

Read on to learn more.

How to Claim the Employee Retention Credit

The employee retention credit (ERC) is a credit that will reduce the Social Security tax portion for the employer. One way to claim the ERC credit is by using Form 941 (Employer's Quarterly Federal Tax Return). Going this route will give you a refund of tax deposits that were previously paid. 

Another way to claim the ERC is to reduce the tax deposits made by the credit amount that you are expecting. In the event that the credit is more than the tax deposits you made, then you can request an advance payment by filing Form 7200. 

Because the ERC expired at the end of 2021, ERC Today has to be filed via an amended Form 941X. You just have to demonstrate that you were eligible for the payroll tax credit but did not claim it. 

PPP Loans and ERC Eligibility

If you are wondering if you are eligible to receive the ERC even if you received a PPP loan, the answer is, yes. You just can't apply the credit to any wages that were already forgiven or wages that are expected to be forgiven under the PPP loan program. 

This means that if you used PPP loans to pay for $60,000 of employees wages, and you believe you will qualify for forgiveness, then you can't use that $60,000 figure when calculating your ERC. 

Who Qualifies?

The business has to be fully or partially closed because of a government order from the COVID-19 pandemic, or the business needs to have a significant decline in gross receipts. Either one of those requirements is a must for either the year 2020 or 2021 in order to use the credit. 

In the 2020 tax year, the business had to have seen a 50% drop in gross receipts in the quarter compared to the same quarter the previous year. Also, the business had to have 100 or fewer full time employees. 

During the 2021 tax year, the business had to have a 20% drop in gross receipts in the quarter compared to the same quarter in 2019. Plus, the business had to have between 1-500 W-2 employees, not counting the owners.  

In order to count an employee for the ERC, that employee needs to be full time and working at least 30 hours per week or a minimum of 130 hours per month. 

Feeling Like an ERC Pro?

Now that you've learned more about employee retention credit and how to file for the credit, you can take action yourself or talk to your accountant if you feel you still need help. 

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