Frequently asked questions about the Employee Retention Credits
Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. Keep in mind that current and historical facts may not be indicative of future results. Information presented should not be considered investment advice or a recommendation to take a particular course of action. Always consult with a financial professional regarding your personal situation before making any financial decisions. The former IRS attorneys at Holtz, Slavett & Drabkin analyze the statute of limitations to claim a refund, work with clients to submit refund claims, and pursue refund litigation when appropriate.
Q1. What is the definition of qualified wages for the ERC? (updated Sept. 4,
- The credit is refundable, which means that Eligible Employers may receive payment of the portion of the credit that exceeds certain employment taxes that are due.
- The Employee Retention Credit (ERC) also known as Employee Retention Tax Credit (ERTC) is a program that was established as part of the CARES Act in March 2020.
- Be wary of anyone who says you can use all wages when calculating your ERC.
This is an important distinction that people often misunderstand. These credits can offset future tax contributions or you can receive a refund check – it’s your choice. As you would imagine, most people choose to receive a check. Like many things from the government, this of course changed several times. The ERTC program truly became valuable to business owners with the American Rescue Act changes in March of 2021.
In this situation, a taxpayer may increase their wage expense relative to the disallowed ERC in its current return filing. Note that a taxpayer may still wish to amend its prior year returns to recover the previously reduced deduction. The ERC is a refundable tax credit created in March 2020 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help businesses impacted by COVID-19. The credit applied to wages paid from March 13, 2020, to Sept. 30, 2021, and extended to Dec. 31, 2021. It originally allowed eligible employers to claim a credit against employment taxes for 50% of qualified wages; the percentage later increased to 70% for the first three quarters of 2021.
Key timeline summary for the ERC
You also need any completed Forms 7200 that you submitted to the IRS and any completed federal employment and income tax returns related to your claim for ERC. IRS will not process any new, previously unfiled tax returns (including original filings) sent to the dedicated ERC claim withdrawal fax line. Business A does not need to amend its income tax return for tax year 2021. Instead, Business A should account for the overstated deduction by including the $700 in gross income on its 2024 income tax return.
Maybe Eligible
The former IRS attorneys at Holtz, Slavett & Drabkin are your trusted allies in navigating the intricate landscape of the ERC. Former IRS Attorneys of Holtz, Slavett & Drabkin, APLC, assist clients in all types of disputes with the Internal Revenue Service and state tax authorities. You can use notes or other documents as proof faqs on the employee retention tax credit that your operations were suspended due to COVID-19. An ERTC specialist can tell you exactly what you need when you contact them for help. It should have affected 10% of your operations or 10% of your staff for it to qualify you for the ERTC. You should count all of your locations as a single business.
NOTE: The new $1.9 trillion relief bill passed on March 11, 2021 made adjustments to the ERC. Consult with your CPA.
- Others who received refunds might have forgotten to amend their returns in time and lacked a solution to correct their tax liability.
- This tax increase, however, will be significantly lower than the credit you receive.
- If your PPP loan was forgiven, you can’t claim the ERC on wages that were reported as payroll costs to obtain Paycheck Protection Program loan forgiveness, however, you may still be eligible to claim ERC.
- Employers must file amended returns for any quarter ending in 2021 no later than April 15, 2025.
Employers should be wary of ERC advertisements that advise them to “apply” for money by claiming the ERC when they may not qualify. As a reminder, anyone who incorrectly claims the credit has to pay it back and may owe penalties and interest. The only way to claim the ERC is on a federal employment tax return. While an employer may not include wages funded by a PPP loan in the ERC calculation, PPP funds only apply to eight to ten weeks of wage expenses. Going forward, the only way to apply for the ERC is to file an amended Form 941X (Quarterly Federal Payroll Tax Return) for the quarters during which the company was an eligible employer. If eligible, employers can claim the ERC for qualified wages paid in Q1, Q2 and Q3 of 2021.
Q3. Who can sign a claim for refund for the ERC? (added July 27,
See Claiming the ERC for an explanation of how ERC affects your income tax return. If you need help, seek out a trusted tax professional. Therefore, you may be able to deduct the wage expense in a later year if you didn’t get the expected reimbursement – in this case the ERC.
What dates does the ERC program cover?
We can help you assess if you qualify, and then we can help you get together everything you need to apply for this credit. You should not count PPP loans or any other loans as revenue when determining if you’re eligible for this credit. Loans help you stay afloat, but they are not business revenue. The alternative deadline is two years from the date you paid the tax. This deadline only comes into play in situations where you paid the tax significantly later than you filed the return. You can claim the ERTC on a business owner’s wages if the owner owns less than 50% of the company.
A. The ERTC uses the aggregated group to determine eligibility (impacts of orders and gross receipts tests) and the number of full-time employees, which affects the determination of qualified wages. Entities under common control or management will need to evaluate whether they will be treated as a single employer for purposes of the ERTC. Generally, taxpayers may be required to aggregate when there is a parent-subsidiary controlled group, a brother-sister controlled group, a combined group of corporations, or an affiliated service group. The aggregation rules can be complex, but they do not by themselves preclude eligibility; they determine what entities must be combined and treated as a single employer.
Q2. Is there a deadline to claim the ERC? (added July 27,
In addition, using these companies could put you at risk of someone using the credit as a ploy to steal your identity or take a cut of an incorrectly claimed credit that you’d need to pay back. You may have questions about whether an amended return should be prepared to reflect the ERC claim. In March 2023, the IRS Office of Professional Responsibility issued relevant guidance on this issue. Tax Section members can download the ERC decision tree with various decision points to help protect you and your firm from significant risk. Remember, each situation should be evaluated based on the facts and circumstances to determine the proper treatment. Businesses that claimed the Employee Retention Credit may have received IRS Letter 105-C if the IRS identified the claim as ineligible.