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You might still have time to claim the Employee Retention Credit (ERC) under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which encourages businesses to keep employees on their payroll.
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The refundable tax credit was initially 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19, according to the Internal Revenue Service (IRS). However, for 2021, the ERC was raised to 70% of the first $10,000 in wages per employee in each quarter of 2021, according to the Treasury Department. That means this credit is worth up to $7,000 per quarter and up to $28,000 per year, for each employee. If the amount of the tax credit for an employer is more than the amount of the employer’s share of those payroll taxes owed for a given quarter, the excess is refunded to them, the Treasury stated.
To receive the ERC, businesses must monetize the credit for every payroll period by filing a quarterly payroll tax return using Form 941, according to ERC Today. For example, if a business pays out $100,000 in payroll, they can expect a $70,000 credit.
ERC Today explained that despite the expiration date of October 1, 2021, you can still take advantage of the employee retention tax credits. If your business is eligible and you didn’t previously file for the credit, you may file for a retroactive refund. To do so, you will have to submit an Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, Form 941-X. There is a three-year deadline from the date of your original filing.
In addition, eligibility is based on 2019 records. Businesses with 500 or fewer employees during 2019 may qualify, and gross receipts in 2020 or 2021 must be at least 20% lower per quarter than the same quarter in 2019.
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Businesses with 100 or fewer full-time employees may qualify for a 100% employee wage credit. This is applicable whether the business is open for business or subject to a shutdown order.
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