The outbreak of COVID-19 complicated all aspects of our lives, including taxes. However, there were some positive changes to the IRS tax code designed to help people cope with recent COVID-related challenges. For instance, small and medium-sized businesses with W2 employees could take advantage of a generous Employee Retention Tax Credit (ERTC) when filing payroll taxes.
Unfortunately, since the ERTC has changed many times since it was introduced, many employers feel it's not worth their trouble to research this complex credit. Although the US government set aside ~ $80 billion for ERT credits, the White House says just $1 billion was claimed in 2021.
Yes, understanding ERTC can be complicated, but the financial benefits for employers can be immense. Under the current policy, you can claim up to $5,000 per employee per quarter in 2020. Employers could also claim ERT credits of $7,000 per employee in Q1, Q2, and Q3 of 2021.
Not every business will qualify for ERTC, but it's well worth an employer's time to see if they meet the requirements for these credits. If you're struggling to understand ERTC, you must speak with a tax professional like Travis Watkins for personalized assistance.
Who Could Apply For Employee Retention Tax Credits?
As mentioned above, ERTC is intended to help small and medium-sized businesses affected by the COVID-19 pandemic. Employers with over 500 full-time W2 employees don't meet the IRS's specifications for these credits. However, if your company has less than 500 full-time W2 employees that make under $10,000 per quarter, then chances are you could request these credits.
After establishing that your business's size meets the qualifications for an ERTC, you should first look at your profit & loss calculations for quarters in 2019, 2020, and 2021. If you can show your gross profit loss declined by 50 percent between 2019 and 2020, you can claim ERTC for quarterly 2020 payroll taxes. However, you only need to prove a 20 percent gross profit loss between 2019 and 2021 to qualify for quarterly 2021 ERT credits.
Even if you can't prove these gross profit losses, there are other ways to get ERTC. For instance, if you can demonstrate government mandates related to COVID-19 adversely affected your business, you can still apply for these credits. You must show the IRS that COVID-19 orders cut your operations by 10 percent. The IRS may also approve credits for businesses that were adversely impacted by COVID-related supply chain disruptions.
How Much Can Businesses Get From ERTC?
The amount you can receive from ERTC depends on what quarter you're claiming for. If you qualify for ERT credits in 2020, you can receive up to $5,000 in relief per W2 employee per quarter. The tax credits for 2021 are even higher at $7,000 per W2 employee per quarter.
However, it's important to note that the ERTC benefits for businesses stop in Q3 of 2021. The only businesses exempt from this rule are "recovery startup businesses." This refers to any qualifying small or medium business that began operations after February 15th, 2020. Recovery startup businesses can claim up to $50,000 per quarter in Q3 and Q4 of 2021.
What Paperwork Do Businesses Need To File For ERTC Benefits?
You can file for ERTC benefits on your own or with the help of a professional tax attorney like Travis Watkins. The essential info you'll need to supply the IRS with is your Form 941 and the total wages for each qualifying W2 employee for whatever quarter you're applying for.
Please remember to compare your gross profits between 2019 and either 2020 or 2021. If your business didn't start operations in 2019, you could submit data from 2020.
A Few ERTC FAQs
How Long Do Employers Have To File For ERTC?
Even though ERTC benefits ended in 2021, that doesn't mean employers can't apply for them now. In fact, the IRS says it will recognize ERT claims three years after filing the initial Form 941 for whatever quarter you're seeking credits. For example, if you filed taxes in July 2020, you have till July 2023 to submit paperwork for ERTC.
While you have a while to claim your ERTC benefits, please don't use that as an excuse to hold off on seeking compensation. The IRS is notorious for taking a long time filing paperwork, so it's always best to put your claims in ASAP for the highest chance of success.
How Long Will It Take For The IRS To Submit My ERTC?
There's no set date for when the IRS will reward employers with their ERT claims, but you should expect to wait at least nine months to see these credits. It may take a year to redeem your ERTC.
For the fastest results possible, it's always better to work with a professional tax team with experience filing ERTC with the IRS.
Can Self-Employees Or Independent Contractors Apply For ERTC?
ERTC is a payroll tax credit, which means you need W2 employees to qualify. So, if you're self-employed, you cannot claim ERTC.
Do Family Employees Qualify For ERTC?
Employers can only claim ERTC using wages from non-family employees. So, you won't be eligible for credits if you're a 100 percent family-run business.
Where Can Employers Find More Info On ERTC?
If you're still unsure about ERTC, it's best to start with the IRS's official FAQ portal. Here, you'll find dozens of questions related to the latest revisions in ERTC, as well as contact info should you want to give the IRS a call.
However, please bear in mind the IRS isn't known for its speedy recovery time. Also, if you've been waiting for four hours, you'll likely get disconnected from the IRS helpline. For more reliable customer service, we recommend reaching out to ERTC tax professionals like Travis Watkins on the Contact Us page.
The idea behind ERTC is simple to understand: financial aid for small businesses affected by the COVID-19 pandemic. However, going over the qualifications and application process for ERTC can be challenging. If you're not a professional in payroll taxes, you may not feel confident filing for ERTC benefits.
However, considering how much you could gain from filing for ERTC, employers shouldn't pass up this opportunity. Even though the tax period for ERTC has closed, there's still time for employers to get the compensation they deserve. Please consider talking with a tax professional like Travis Watkins. Our staff can help you understand what you qualify for and how you can submit the proper ERTC paperwork to the IRS.