SAN FRANCISCO, CA / ACCESSWIRE / September 3, 2022 / The Employee Retention Credit (ERC) program is one of the last hopes for small business owners to claim new-found money within their existing business. It is also one of the most confusing and complex to figure out and calculate correctly. There are multiple ways for a company to qualify including revenue loss, shutdowns, or disruptions due to COVID-19. The problem? There are so many ERC credit rules and regulations which make it near impossible for companies to figure out on their own. Good news? Qualifying businesses can receive up to a $26,000 Internal Revenue Service (IRS) refund per W-2 employee on payroll during 2020 and 2021, and have up to three years to file amended 941-X returns to claim the ERC refund credit.
"With the Small Business Administration (SBA) COVID-19 loan programs either closed or out of funds, the Employee Retention Tax Credit (ERTC) program is one of the last hopes for small businesses to get money in the form of an ERC refund check from the IRS, but only if they qualify, and calculate their ERC credit correctly," said Marty Stewart, Chief Strategy Officer (CSO) for Disaster Loan Advisors (DLA).
What is the Employee Retention Credit (ERC) Tax Credit?
The ERC credit, or ERTC credit, is a refundable IRS tax credit / tax refund that all businesses and companies who qualify, may claim for each W-2 employee that was on payroll during the 2020 and 2021 tax years. The ERC credit is a valuable tax credit and is money the business has already paid the IRS in quarterly payroll taxes during the 2020 and 2021 business tax filing years. A business has up to three years into the future to file an amended IRS Form 941-X for each quarter they qualify for, in order to claim the ERC tax credit.
In early 2020, many businesses scrambled to apply for the SBA EIDL loan and the PPP loan programs and had no knowledge of exactly what the ERC credit program was. In March 2020, the 116th Congress enacted the ERC as part of the The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2.2 trillion economic stimulus bill signed into law by former President Donald Trump on March 27, 2020.
Similar to the Paycheck Protection (PPP) forgivable loan program, the ERC credit was designed to allow companies and small businesses to keep employees on payroll and continue to pay employee health insurance benefits during the COVID-19 pandemic.
ERC Credit Eligibility for Past W-2 Payroll in 2020
For the 2020 tax year, the ERC credit is a fully refundable tax credit for employers equal to 50 percent of qualified wages that also includes allocable qualified health plan expenses that eligible employers pay their employees.
This ERC credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000. The maximum credit / refund for an eligible employer for qualified wages paid to any employee in 2020 is $5,000 per employee.
ERC Credit Eligibility for Past W-2 Payroll in 2021
The maximum credit / refund for an eligible employer for qualified wages paid to any employee in 2021 is $7,000 per employee, per quarter, for the first, second, and third quarters only. This calculates a maximum ERC eligibility of $21,000 per employee for 2021, if the business is not considered a startup business. For startup businesses, they may claim the fourth quarter of 2021, for an additional $7,000 per employee, bringing the total to $28,000 per startup business employee for 2021.
Timeline of Changes and Modifications to the Employee Retention Credit (ERC) Program
With all the Employee Retention Credit (ERC) rules, regulations, and laws passed over the last several years, it has been challenging for business owners to know if they are even eligible, or how much they can claim for an ERC credit.
A timeline history of changes made to the ERC credit program:
1. Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
Enacted on March 27, 2020, the CARES Act was designed to encourage eligible employers to keep employees on their payroll, despite experiencing financial hardship related to the coronavirus pandemic, with an employee retention tax credit (Employee Retention Credit).
2. CARES Act - 2020 Tax Year
For employers who qualify, including borrowers who took a loan under the initial PPP, the credit can be claimed against 50 percent of qualified wages paid, up to $10,000 per employee annually for wages paid between March 13 and December 31, 2020.
3. Consolidated Appropriations Act (CAA) - 2021 Tax Year
The CAA was enacted on December 27, 2020, allows Employers who qualify, including PPP recipients, can claim a credit against 70% of qualified wages paid. Additionally, the amount of wages that qualifies for the credit is now $10,000 per employee per quarter for the first two quarters of 2021.
4. American Rescue Plan Act (ARPA) - 2021 Tax Year
Enacted on March 11, 2021, the ERC credit remains at 70% of qualified wages up to a $10,000 limit per quarter so a maximum of $7,000 per employee per quarter for all of 2021. So, an eligible employer could claim $7,000 per quarter per employee or up to $28,000 for 2021.
Under the ARPA, the ERC is available to eligible employers for wages paid during the third and fourth quarters of 2021.
5. Infrastructure Investment and Jobs Act (IIJA) - 2021 Tax Year
Enacted on November 15, 2021, amended the law so that the Employee Retention Credit applies only to wages paid before October 1, 2021, unless the employer is a recovery startup business.
The Infrastructure Investment and Jobs Act (IIJA) amends section 3134 of the Internal Revenue Code to limit the availability of the employee retention credit in the fourth quarter of 2021 to taxpayers that are recovery startup businesses, as defined in section 3134(c)(5). Therefore, taxpayers that are not recovery startup businesses are not eligible for the employee retention credit for wages paid after September 30, 2021.
Some taxpayers that are no longer eligible to claim the employee retention credit for wages paid after September 30, 2021 may have already reduced their employment tax deposits in anticipation of claiming the employee retention credit for the fourth quarter of 2021. These taxpayers should monitor guidance issued by the IRS to learn if they must take any action regarding these amounts.
ERC Credits are Confusing and Complex to Calculate, Even for Certified Public Accountants (CPAs), Accounting Firms, Payroll Companies, and Tax Preparers
"Once the SBA exhausted funds for the EIDL loan program, many business owners turned their attention to seeing what other government programs were available. Because of the confusion and complexity of the ERC credit program, with determining eligibility and performing accurate and correct ERC credit calculations, many CPAs, tax professionals, and business owners have reached out to us for help specifically with the ERC credit program due to our specialized expertise," said Stewart.
Many small business owners thought the Small Business Administration's (SBA) Economic Injury Disaster Loan (EIDL), Paycheck Protection Program (PPP), and Restaurant Revitalization Fund (RRF) programs were often confusing, complex, frustrating, or challenging to navigate at times. Despite this, to its credit, the SBA has successfully put billions of dollars in the hands of millions of business owners through these financially life-saving loan and grant programs.
Frequently Asked Questions (FAQs) About the ERC Credit
"For the past three months, we've been talking to dozens of business owners and principals every day, to field questions and provide accurate answers to help them correctly navigate the ERC credit program. Even other accounting and tax professionals are calling us to assist with their existing business clients, since many of these other firms do not specialize specifically in the ERC tax credit program like Disaster Loan Advisors does," said Stewart.
Here are just a few of the commonly asked questions Disaster Loan Advisors receives from businesses on a daily basis:
- Does My Business Qualify for the ERC Credit for 2020, 2021, 2022?
- Can I Claim the ERC Credit Even if I Received a PPP Loan?
Who is Considered an Eligible Employer for the ERC Credit?
- Is the ERC Credit a Loan, a Grant, or a Business IRS Tax Credit?
- Is the ERC Credit Really "Free" Money?
- Can a Business Owner Claim Themselves on the ERC Credit?
- If My Business Qualifies, WIll I Receive an IRS Tax Credit or an IRS Refund Check?
- What if My Business Has Less Than 5 W-2 Employees?
- Is the ERC Credit a State-Level Payroll Tax Credit or an IRS Federal-Level Tax Credit?
- If My Business Qualifies, WIll I Receive an IRS Tax Credit or an IRS Refund Check?
- Is the ERC Credit a Scam, or is it Legit?
- Why Are There So Many ERC Companies Contacting My Business?
- Is it Legal or Ethical for Companies to Charge a Percentage (%) of My ERC Credit Refund?
- Is there a Deadline for Filing the ERC Tax Credit?
- How Long Will it Take to Get My ERC Refund Check from the IRS?
- This is a Very Confusing Process, Can You Help Us File the ERC Claim?
About Disaster Loan Advisors™ Employee Retention Tax Credit (ERTC) Services
Disaster Loan Advisors™ (DLA) is a trusted team of financial tax professionals and Employee Retention Credit (ERC) consulting specialists dedicated to saving businesses from lost sales, lost customers, lost revenue due to financial and economic harm caused by the COVID-19 / Coronavirus disaster, Delta and Omicron variants, and other recession and inflation downturns in the economy.
Having worked with over 1500+ business clients navigate the SBA Economic Injury Disaster Loan (EIDL), Paycheck Protection Program (PPP), and Restaurant Revitalization Fund (RRF) programs, DLA further refined its expertise in the ERC Tax Credit program assisting ownership groups with multiple business entities, multiple location business owners, and other complex situations that require an expert strategist to be brought in to assess the situation and create the most strategic path forward.
DLA further specializes in another key pandemic-era SBA / IRS program where business owners are leaving a lot of relief fund money on the table. It is the often misunderstood and confusing Employee Retention Tax Credit (ERC) / Employee Retention Tax Credit (ERTC) program whereby business owners can retroactively receive up to $26,000 back for each W-2 employee they had on payroll for the 2020 and 2021 tax filing years. Done correctly, these tax credits or cash refunds can be claimed retroactively for up to 3 years.
It's encouraged that business owners obtain professional assistance in going through the complex 941-X amended filing process to help your company maximize the full value of the ERC Credit Program, while staying safe and compliant within the complex IRS rules and regulations for claiming the ERC Credits.
DLA doesn't charge a percentage (%) of your ERC refund like many companies are charging. Instead, DLA works on a reasonable professional flat-fee basis. If you are looking for an ERC Company that believes in providing professional ERC services and value for small business owners, in exchange for a fair, reasonable, and ethical fee for the amount of work required, Disaster Loan Advisors is a good fit for you.
Need Strategic Guidance on Determining ERC Eligibility and Claiming the ERC Credit for Your Company?
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SOURCE: Disaster Loan Advisors™ (DLA)