Did your business miss out on claiming the Employee Retention Credit (ERC) during the pandemic? If so, don’t fret! Although the ERC expired at the end of 2021, businesses can still retroactively claim the credit if they have not yet done so!
What is the ERC?
The ERC is a tax credit designed to reward employers who strived to retain their employees during COVID-19 despite significant revenue loss or government-mandated limitations on their business operations.
Who is Eligible?
The credit is available to businesses with operations that were either fully or partially suspended by a COVID-19 governmental order during the period the order was in force; had a significant decline in gross receipts; or qualified in the third or fourth quarters of 2021 as a recovery startup business.
The covered period for a significant decline in gross receipts began on the first day of the quarter in which the decline occurred and ended on the last day of the quarter in which gross receipts recovered to 80% or greater compared to the same quarter in 2019. For 2020, the decline must be 50% or greater during the 2020 calendar quarter compared to the same period in 2019.
For 2021, the provisions relaxed, and a business qualified with a 20% or greater decline in gross receipts in a 2021 calendar quarter compared to the same period in 2019. Employers also qualified for Q1 2021 based on a 20% or greater decline in gross receipts using a lookback period of Q4 2020 compared to Q4 2019.
Additionally, a new category of eligibility was created for the ERC in 2021 quarters 3 and 4 for businesses that started after February 15, 2020, and averaged less than $1 million in average gross receipts. Taxpayers that are eligible as Recovery Startup Businesses do not have to meet government shutdown or gross receipt eligibility requirements, although the credit for these taxpayers is limited to $50,000 per quarter.
How Can I Retroactively Claim the Credit?
If you haven’t claimed the ERC already, you can look back on your payroll data from the 2020-2021 years and retroactively claim the credit if eligible for 2023, 2024 and in some cases the 2025 tax year.
Taxpayers will need to file an amended 941-X form for each quarter that applies.
Businesses have until April 15, 2024, to submit amended returns for Q2- Q4 of 2020 and until April 15, 2025, to submit amended returns for quarters in 2021.
Things to Consider
You need to know your PPP loan information.
Did you already apply for a PPP loan? If so, it’s important to keep your loan information on hand and available, especially if you plan to work with a CPA to determine your retroactive ERC amount. CPAs will need your PPP loan forgiveness period in order to know which payroll dollars you have already claimed for PPP loan forgiveness (or will need to use towards loan forgiveness if not already applied for) to accurately calculate your credit. This brings us to our next consideration…
You can’t double-dip.
Wages and health plan expenses used towards PPP loan forgiveness are not eligible for the ERC. Expenses that were reimbursed by Family First Coronavirus Response Act cannot be used towards PPP loan forgiveness OR the ERC. The allocation of expenses gets even more complicated if your business claims wages towards other tax credits like the Work Opportunity Tax Credit or Research and Development Tax Credits.
Digging through your documents to determine your ERC eligibility and ensuring it doesn’t overlap with your PPP loan forgiveness is a complex process that requires diligence and time. At BerganKDV, our Accounting Services team is partnering with clients to help them retroactively claim the ERC by determining their eligibility and filing amended forms where possible.
If you know you haven’t filed for the ERC yet and want to see if you’re eligible to retroactively claim it, we’d be happy to assist you. Contact us today and one of our team members will reach out to discuss more about our accounting services and how we can save you time and claim tax credits like the ERC. Let’s have a conversation!
