Understanding the Employee Retention Credit and How to Claim It

The Employee Retention Credit (ERC) is a fully refundable tax credit that eligible employers can claim to cover certain payroll taxes. It's not a loan and doesn't have to be repaid. Generally, the refundable credit exceeds the payroll taxes paid in a credit-generating period. The credit is linked to the payroll and is calculated quarterly.Companies that apply for the ERC simultaneously with their payroll tax returns can reduce the required payroll tax deposits by the amount of the credit.

In addition, since the creation of the ERTC program, several laws have come into effect that influence how the credit can be claimed. Companies can no longer pay salaries to apply for the Employee Retention Tax Credit, but they have until 2024 and, in some cases, 2025, to analyze their payrolls during the pandemic and apply for the credit retroactively by filing an amended tax return. Due to changes in security regulations related to COVID-19 and the increase in requests for reimbursement of Employee Retention Credits, the IRS is currently processing millions of unprocessed payroll tax returns.When you submit Employee Retention Tax Credit documentation to the IRS, it takes six to nine months for them to issue you a check or email stating that you have a payroll tax credit, so that's a long time. When talking to an agent, explain that they are contacting you to ask about the status of your employee retention credit, specifically if you have completed your 941-X (amended returns) for all relevant quarters.

Most employers, including colleges, universities, hospitals and 501 (c) organizations after the enactment of the United States Rescue Plan Act, could be eligible for credit. The IRS notification is important to understand how to apply the changes to Form 941 needed to apply for the credit.This law increased the employee limit to 500 to determine what salaries are applicable to the credit. The ERTC is a refundable credit that companies can request on qualifying salaries, including certain health insurance costs, paid to employees. In short, companies should not expect a refund of the employee retention credit any time soon due to numerous delays, as reported by the IRS.

The Employee Retention Credit under the CARES Act encourages companies to keep employees on their payroll.Previously, the Consolidated Appropriations Act expanded the requirements to include companies that applied for a loan under the Paycheck Protection Program (PPP), including borrowers from the initial round of the PPP who were not originally eligible to apply for the tax credit. The notice includes guidance on how employers who received a PPP loan can retroactively apply for the Employee Retention Tax Credit. Remember that the credit can only be deducted for salaries that are not forgiven or that are expected to be forgiven under the PPP. To apply for credit for previous quarters, employers must file Form 941-X, Employer's Adjusted Quarterly Federal Tax Return or Request for Refund, for all applicable quarters in which qualifying wages were paid.The Employee Retention Credit is an important tool for businesses struggling during COVID-19.It helps employers keep their employees on their payrolls and reduces their financial burden during these difficult times.

To ensure you get your refund as quickly as possible, make sure you understand all of your eligibility requirements and file your paperwork correctly.

Denise Lefler
Denise Lefler

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