To begin the Employee Retention Credit (ERC) process, employers must submit Form 941, the employer's quarterly federal tax return. Amendments can be submitted up to three years after the filing date of each quarterly payroll tax, resulting in a different deadline for applying for the ERC for each calendar quarter. The ERC is equivalent to 50 percent of the qualifying wages (including qualifying health plan expenses) that an eligible employer pays in a calendar quarter. The ERC can only be filed using IRS Form 941-X, “Adjusted Federal Tax Return or Employer Refund Request.” Some tax advisors are misstating the rules related to the deadlines for employee retention credit (ERC) applications.
It is important to understand the correct deadlines for filing an ERC application in order to maximize the benefit of this credit. The ERC is a fully refundable tax credit for employers that is equivalent to 50 percent of qualified wages (including allocable qualified health plan expenses) that eligible employers pay to their employees. This credit is available for wages paid between March 12, 2020 and December 31, 2020. The credit is available for wages paid after December 31, 2020 if the employer has not received a Small Business Interruption Loan (PPP loan).
The deadline for filing an ERC application depends on when the employer files their quarterly payroll tax return. Generally, employers must file their quarterly payroll tax return by the last day of the month following the end of each quarter. For example, if an employer files their quarterly payroll tax return on April 30th, they have until July 30th to file an ERC application. If an employer has already filed their quarterly payroll tax return and wants to apply for an ERC, they must file an amended return using Form 941-X.
This form must be filed within three years from the date that the original return was due or two years from the date that the tax was paid, whichever is later. It is important to note that employers cannot claim both the Employee Retention Credit and the Paycheck Protection Program loan forgiveness at the same time. Employers must choose one or the other when filing their taxes. The Employee Retention Credit is a great way for employers to save money on taxes while also helping their employees during these difficult times.
Understanding the deadlines associated with this credit is essential in order to maximize its benefits.