Due to the economic challenges that the country faced during the pandemic in 2020 and 2021, the government provided stimulus packages and incentives for business owners so that they would keep their employees despite the government closures and mandated lockdowns.
Now that the economy is slowly recovering, the government has deemed it necessary to provide tax incentives to employers who did not let go of their employees during the pandemic. This is referred to as ERC credits or a special kind of tax credit that the employer can apply for so that they will be given tax credits and refunds if applicable for the years 2020 and 2021. You might have noticed that in 2021, there has been larger coverage and higher tax incentives for small businesses that were closed due to covid related shutdowns and disruptions. The present government has created these advantages out there currently and these credits will hit your bottom-line income in the present time and your next quarterly filing and for the rest of the four quarters of 2021.
The employee retention credit or ERC credit is a new tax refund program created under the CARES Act. Business owners might not have any idea that there is a potential reduction for employers’ tax dues when the world was devastated by COVID-19. This refundable reduction may be a relief package that is directed at businesses to encourage them to retain staff on their payroll. The ERC legislation was expanded under the Consolidated Appropriations Act that took effect in January 2021. As a result of this growth, all employers that were affected by the Covid19 restrictions and who took the PPP loans may also be eligible for the ERC credits for 2020 and 2021. Since the ERC credit is new and the legislation that covers it is dynamic, employers would need dedicated tax professionals to create documents and forms in support of your claim and to make sure that it is compliant with all new federal implementing rules and regulations.
Why do you need the ERC Credits?
These credits could deliver income for your business in this time when the economy is just getting back on its feet. When you claim the ERC credits today, they will cover the tax dues for 2021 and retroactively from 2020. The excess of the tax credits will be refunded to the employer and is good as cold cash. You will be able to file for this credit for every quarter of 2021 on your 941 filings and should conjointly receive the advance payment of some of the credit. This will provide you with additional capital for your business and can be used to jumpstart the production, operation, and even the inventory of the business. At a time when cash flow is not as stable as before, businesses can make good use of this incentive in every possible way for the betterment of the company.
Who is qualified to file for ERC credits?
To see whether or not your business is eligible for the ERC credits for a given quarter, start by determining whether your business was totally or was partly shut down due to governmental orders throughout any or part of the quarter. Also, try to determine if the business’s gross receipts in every quarter declined by about 20% from 2019 either the first quarter of 2020 or the other succeeding quarters from 2020 to 2021. If you say yes to any of those conditions, then your business is eligible for the ERC credits. The next step is to determine the number of employees you had in 2020 and 2021 as this will impact the amount of tax credit you are entitled to per employee. If you had fewer than 500 employees whose wages were paid from 2020 to 2021, then you are entitled to at most $10000 per worker amount which can be a very substantial number for someone who requires funds. Businesses that received the PPP loans in 2020 or 2021 are still qualified to claim the ERC credits. On the other hand, when loan forgiveness was applied for by the business, this cannot be claimed as part of the ERC credits, however, the remaining wages that did not fall under the forgiveness loan can be eligible for credit.
When is the deadline for filing for ERC Credits?
The ERC credits are applicable in the four quarters of each year from 2020 to 2021, as such the filing period for tax credit claims is until January 2024 which is enough time to prepare for the documents. The business owner can also apply retroactively so that even if you had already filed your taxes for 2020 and 2021 you can still be granted the tax credits that will be claimed in the succeeding quarters after 2021, the excess of which can be refunded to the business owner.
How to file ERC Credits claims?
The incentives embodied by ERC credits are quite substantial for business owners if they can demonstrate the required eligibility criteria and a complete set of documentary requirements. The difficulty is that business owners do not have the expertise for this, they need to rely on a business partner or consultant who will be able to do all the forms and file the claims to the office assigned to it. Thus, it is important that this consultant is well-versed in tax credit legislation and have a substantial understanding of the ERC credits guidelines. It is best to work with a firm for this as they have the manpower to prepare the reports and other forms needed to be attached to the claims. They would also be able to tell the business owner what documents or reports from the company are needed to complete the attachments to the claims.
Lastly, this consultant should also know where and when the claims should be filed, as well as have access to the agency in charge of reviewing the claims and be able to work fast if it needs to be corrected or edited. A consultant would also ensure that your claims will be filed properly and increase the possibility that it will be a success.
