The employee retention credit ended in late 2021 when Congress enacted a new program to replace it called the Infrastructure Investment and Jobs Act. However, you can still apply for tax credits retroactively. You have until April 2024 to file claims from March 13 to December 31, 2020, and until April 2025 to file claims from January 1 to September 30, 2021. The maximum tax credit per employee is $26,000.
How to determine eligibility for ERC tax credits
If you meet the date requirements to file for federal tax credits, your next step is to ensure that you meet each of the requirements below, if applicable.
Revenue decline
Your business posted a gross revenue decline for 2020, 2021, or both years. The government determines whether a revenue loss is legitimate by comparing your business tax returns from those years with what you filed in 2019. The minimum percentage of economic loss suffered by your business to be eligible for federal tax credits depends on the quarter and year for which you apply.
Special rules for startup business recovery
This eligibility requirement only applies if you started a business after February 15, 2020, and meet gross receipts requirements. If eligible, you could potentially receive up to $50,000 in federal tax credits per quarter for the third and fourth quarters of 2021.
Suspension of business operations
The government considers either a full or partial shutdown of your business a valid reason for you to apply for ERC credits, but it must have been due to a local or federal mandate. If you didn’t have to close your business entirely, you should be prepared to show proof of at least a 10% loss in revenue-creating opportunities.
How to calculate your potential tax credit
Employee retention tax credits for 2020 can be up to 50% of wages and health insurance benefits paid at a maximum of $5,000 per employee. For 2021, you could receive up to 70% of wages and benefits paid up to a maximum of $21,000 per employee for only the first three quarters of the year.
You can file a claim for all full-time employees who received wages in 2020 if you had fewer than 100 employees in 2019. Businesses that had fewer than 500 full-time employees in 2019 can make a claim for all who received wages or benefits in 2021.
Criteria that could disqualify you for ERC tax credits
Even if you meet the conditions to apply for federal tax credits retroactively, a few situations could disqualify you from receiving them. These include:
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You accepted federal funds from the Paycheck Protection Program. Be sure to check this qualification carefully, since you could still be eligible if you took out certain types of PPP loans.
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You are self-employed with no employees.
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You are an employer in a state or federal government agency.
Should your business be disqualified from applying for ERC tax credits, you may qualify for other tax relief programs, such as the Emergency Sick and Family Leave Tax Credit. This credit is available to employers who paid sick leave wages to employees between April 1, 2020, and September 30, 2021. You also qualify if any employees took a leave of absence to care for family members or themselves during the COVID-19 pandemic. Paying tipped employees who normally earn more than $20 per month also qualifies.
Documentation needed to submit an ERC Request
The federal government requires business owners to submit an amended paper copy of Form 941-X, called the Federal Quarterly Employment Tax Return. You must do this for each quarter you are claiming credits. Depending on your situation, you will also need some or all of these forms:
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Advance Payment of Quarterly Payments due to COVID-19 (Form 7200).
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Client Services Agreement and Fee Arrangement (if applicable).
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Company financials for all four quarters of 2019 and 2020 and the first quarter of 2021.
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Forms outlining any other grants you received related to COVID-19, such as PPP Section 7001 or 7003 of the Families First Coronavirus Response Act.
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General release of liability (if applicable).
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A government order to suspend or shut down operations (if applicable).
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Power of attorney (if applicable).
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PPP application and forgiveness (if applicable).
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Reporting Agent Authorization (Form 8655).
How to maximize your ERC tax credits
As a payroll expert for over 30 years, Exact Payroll is available to assist business owners in Florida and Pennsylvania with preparing and filing their retroactive ERC requests. Please use this link to request an ERC consultation with Mitchell. You choose the duration of the meeting, date, and time that work best for you. We are also happy to answer additional questions if you’re not ready to apply.
You may call us at 866-987-9898 or send us an email via our website.