Applying for the Employee Retention Credit Can Be Difficult

After a year and a half of the global COVID-19 pandemic, businesses of all kinds are still struggling. In summer 2021, the national unemployment rate remains at 5.4 percent. Small businesses have experienced unprecedented temporary and permanent closures, with some estimates claiming that 200,000 additional closures occurred in the first year of the pandemic compared to a normal year.

The government responded with a number of relief measures, including the Payment Protection Program (PPP), which distributed more than $780 billion in forgiving loans to over 10.7 million borrowers. Instead of having to furlough or lay off staff, this program helped firms keep people employed.

The Employee Retention Credit (ERC), which was proposed as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in early 2020, is another source of relief. This article will explain what the ERC is, how to apply for it, and the most typical obstacles firms have when attempting to claim it.

An Overview of the Retention Credit for Employees

In March 2020, the US government passed the CARES Act to provide urgent help to Americans and companies affected by the COVID-19 outbreak. The virus provoked a nationwide shutdown, which had long-lasting consequences for businesses.

The Employee Retention Credit, which is a completely refundable payroll tax credit, was incorporated in the CARES Act. It covers some eligible earnings paid to full-time employees between March 13, 2020, and December 31, 2020. The ERC was then extended until the end of 2021 by the American Rescue Plan Act of 2021.

This credit was developed by lawmakers to encourage firms to keep their payrolls intact and avoid having to lay off employees. A qualified employer in 2020 or 2021 must have had its operations entirely or partially halted by government order, or had a considerable drop in gross receipts during a quarter when compared to the same quarter in 2019. Here are some further details on the Employee Retention Tax Credit:

Amounts That Qualify

The 2020 credit is equal to 50% of eligible wages, with a pay cap of $10,000 per employee for all calendar quarters. The government extended the scheme through 2021, increasing the credit to 70% with a $10,000 quarterly cap, bringing the total yearly limit for an employee to $28,000.

Wages for Qualified Workers

Wages earned to employees throughout the eligibility period, including health insurance expenditures, are eligible for the ERC. The following is a list of suitable periods:

The period during which a firm was shut down due to government orders; or

For 2020, a quarter in which gross receipts were 50% lower than in 2019, and for 2021, a quarter in which gross receipts were 20% lower than in 2019,

Payment in Cash From the Internal Revenue Service

The employee retention credit isn't a tax credit, thus it's handled a little differently. It has nothing to do with the amount of money you make from your business. The credit is usually in the form of a cash payout from the IRS, and it can be used to assist with payroll tax payments.

Businesses that are eligible must file Form 941-X, Amended Quarterly Payroll Tax Return, with the IRS. This form must be submitted within three years of the initial return filing, which means firms may have until 2024 to join the program.

The Employee Retention Credit has four advantages.

Individuals and corporations are given tax credits to assist them avoid large tax bills each year. COVID-19 credits were designed to help businesses stay afloat during the pandemic's uncertain economic time. The following are the main advantages of the Employee Retention Credit for 2021:

1. A Wide Range of Businesses Qualify

Many firms were negatively impacted by the epidemic, thus achieving the government's conditions for a partial or complete shutdown, or a loss in gross receipts, won't be difficult for many.

2. Applicants are eligible to apply for the ERC.

Businesses can immediately claim the benefit by decreasing payroll taxes remitted to the IRS.

3. There's a chance you'll get a refund.

If your credits exceed your payroll taxes, you can request a refund.

4. Allowances for PPP Loan Recipients

When applying for PPP debt forgiveness, employers who got a PPP loan can now claim a credit for eligible salaries that were not regarded as payroll costs.

Just make sure you're familiar with all of the credit's eligibility restrictions and the application process. It's always a good idea to speak with a professional about your issue.

Applying for the Employee Retention Credit Can Be Difficult

When applying for the ERC, there are a few challenges to be aware of. There may be a few snags in the process, which can rapidly become complex for firms.

Every time the tax code changes, there will be new restrictions to keep in mind while attempting to claim tax credits or deductions. The following are some of the most common challenges for the employee retention tax credit:

• Understanding the conditions for business eligibility

• Identifying which wages are eligible and calculating the appropriate percentages for the applicable year

• Ensure that you submit your application on time and accurately.

• When you own many firms, it can be difficult to complete the process.

• Correctly filling out your tax forms

Any of these issues could stymie employers' efforts to implement the ERC. This is why, if you're confused what to do next, it's always a good idea to seek assistance.

Obtain Professional Assistance The ERC: A Guide to Using It ERC: A Guide to Using It Today is here to assist you with any Employee Retention Credit queries or issues you may have. We offer tax consultation services that are quick, simple, and adaptable, as well as quick filing choices and personal customer support. Our experts can assist you in determining whether you are eligible to apply for the credit in addition to your PPP loan.