November 1, 2023 As we approach the end of the 2023, it is important to review your business’s eligibility for the 2021 Employee Retention Credit (ERC). The ERC is a powerful payroll tax credit that is creating cash flow for many American businesses. Here is a refresher on how the credit works. Table of Contents How Do I Know If I’m Eligible for The ERC Tax Credit? Gross receipts for each calendar quarter in 2021 are compared to the same quarter in 2019. If 2021 revenue is less than 80% of the same quarter in 2019 (i.e., at least a 20% decline in gross receipts), that quarter becomes an eligible quarter for ERC. The credit is equal to 70% of eligible wages paid up to $10,000 per person per eligible quarter in 2021. That’s up to a $7,000 credit per person per eligible quarter. If your business does not qualify by way of the decline in gross receipts in the current quarter, you can look back one quarter (Q4 2020, for example) and if your receipts were down at least 20% last quarter compared to the same quarter in 2019, you qualify this quarter. Even if your business does not qualify in either the current or previous quarter as a result of a 20% decline in gross receipts, you may still qualify if you are under government-ordered restrictions on operations due to Covid-19. In this case, only wages paid during the period of restriction qualify for ERC. Even though the ERC tax credit expired in September 2021, qualified businesses, nonprofits, and employers can still file paperwork and retroactively receive claims for the Employee Retention Credit. Employers can amend previously submitted forms by filing and submitting Form 941-X so they can retroactively claim the Employee Retention Credit. The deadline for filing a claim relating to 2020 is April 15, 2024. For 2021 claims, the deadline is April 15, 2025. Don’t Snooze, Take the Credit Now! If you are eligible, you can take the credit on your first quarter form 941 which is due April 15, 2024 for claims relating to 2020 and April 15, 2025 for claims relating to 2021. If you do not take the credit now, you may amend your 941 later. Taking the credit now will increase your cash flow sooner rather than later. Calculating ERC can be tricky, especially if you have a PPP loan during a period that is eligible for ERC. Wages used in the PPP Loan Forgiveness calculation cannot also be used to calculate the ERC. We can help you create a strategy to maximize your Employee Retention Credit, while still focusing on full PPP loan forgiveness. It is also not too late to take the credit for 2020 if you qualify. The ERC tax credit eligibility rules and credit calculation are different than 2021, but the 2020 credit is also generating significant cash for qualified businesses. ERC Tax Credit Application When applying for the ERC tax credit, businesses must navigate a series of steps. After determining your ERC tax credit eligibility, the next phase involves calculating the eligible qualified wages. This calculation varies based on the business’s size and other factors. The credit is claimed on the business’s quarterly federal employment tax returns, typically using Form 941. Maintaining accurate documentation and compliance with IRS guidelines is essential for a successful claim. Given the complexities, many businesses find it beneficial to seek professional guidance. How KatzAbosch Can Help KatzAbosch can help you create an overarching strategy that Employee Retention Credit, and other tax credits and incentives to help you maximize cash flow. Our dedicated ERC consultants are well-versed in the latest guidance and can help you achieve the best possible long-term benefit to your business. Benefit from KatzAbosch’s industry-leading tax incentives and credits expertise in ERC tax credit eligibility, a credit we’ve excelled in since its inception in 2020. With our assistance, clients have successfully claimed tens of millions of dollars in ERC refunds. Our Employee Retention Credit professionals stay up to date with the latest guidance to secure the best long-term benefits for your business. If you would like to discuss your ERC and PPP forgiveness strategy, please mention it to your KatzAbosch representative or contact us today.
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