During the Covid-19 pandemic, many businesses struggled to stay afloat due to government-imposed restrictions on their trading hours or abilities. This left employers wondering how they were going to manage to pay their employees and also continue to function as a business.
Initially, there were two options. Either, the business continued to pay employees, even if they were unable to fulfill their contractual hours, which retained the staff but left the business in a financial deficit, or they could choose to make employees redundant and keep the money that would usually be spent on wages in the hope that recruitment would be easy later on.
But in 2020, the IRS introduced a third option.
Employee Retention Credit is a scheme proposed by the IRS which allowed business owners to claim back some of the money that they had previous paid out in wages if their business was affected by the Covid-19 restrictions.
This meant that there was an incentive to retain staff and keep businesses running without having to suffer huge financial penalties.
ERC is actually fairly simple to claim. You can complete all the processes yourself, or you could use the services of a specialist ERC professional such as ercbenefits.com that can help you maximize your funding and ensure that the process is completed properly in the shortest time scale.
To be eligible, you would just need to be a small to medium business and prove that your business was affected financially by the government restrictions. If you suffered more than a 20% loss of profits or earnings throughout 2020 or 2021, then you may be eligible for the payment.
You can prove this simply by showing bank statements or projected earnings for the two years based on your year-on-year forecasting.
You would also need to show that you have retained the same number of employees throughout that time. This is a payment to help you to keep your employees at work, so if you have fewer employees than you started with, then the ones you have let go will not count toward your entitlement.
For people who launched their businesses during the pandemic, there are even some circumstances where the IRS will allow you to present evidence of your predicted earnings based on your business model, which means that you don’t have to provide statements that specifically show the 20% detriment.
Employee Retention Credit allows you to claim up to 70% of each employee’s wages per quarter throughout 2020 and 2021. This is capped at $7,000 per employee per quarter, meaning you could claim back $28,000 of an employee’s wage per annum.
This is the maximum you are able to earn, so any employee who makes more than $40,000 per year will still only qualify for this amount.
You can report the qualified wages on Form 941, the Employer’s Quarterly Federal Tax Return. This will help to determine the employer portion of social security taxes too, lumping this and retirement tax into one easy-to-understand statement.
If ERC wasn’t claimed initially, employers can file Form 944-X to complete an adjusted annual federal tax rerun and claim a refund of anything that was paid out prior to the business having knowledge of the scheme – essentially backdating the payment, even if you have already filed.
If you’re struggling to provide proof or have more questions about having to claim the credit, it would be worth speaking to an expert as mistakes could be costly. ERC Benefit is a dedicated team that understands the finer details of ERC and what it could mean for your business. They can help you gather evidence and file your claim to avoid issues later.
Initially, the CARES Act stated that employers receiving PPP were not eligible until the loan was repaid. However, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 changed this to allow PPP receivers to apply. However, wages provided by a PPP loan are not eligible to claim with ERC.
The ERC claim time has been extended on a few occasions, with the amount that can be claimed also being increased midway through the scheme due to the Consolidated Appropriations Act (CAA). The last date that you can file for is December 31, 2021. However, if you have issues filing immediately, you can actually claim retroactively right up until the end of next year.
