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Business owners are always looking for ways to save money and take advantage of government incentives. The Employee Retention Credit (ERC) is a valuable credit created as a part of the federal CARES Act in response to the COVID-19 crisis.
Designed to help businesses keep employees on their payroll during the pandemic, most business owners who took advantage of the program were thrilled to learn they were eligible for the ERC not just for one year, but for multiple years. The ERC is calculated by quarter, and the maximum allowable is six quarters: Q2,Q3, and Q4 of 2020 and Q1, Q2, and Q3 of 2021. Here at DUB Financial, we often run into clients who have only claimed one or two quarters based on revenue reductions. These business owners may have an opportunity to obtain more ERC funds for the remaining quarters if they have other eligibility factors.
You could still take advantage, too, and we’ll help you learn how the process works when you’re applying for more than one quarter, how the application deadline is different, and how easy it is.
How Do I Apply For More Than One Quarter?
The ERC is a tax credit that is available to businesses that have experienced a significant decline in gross receipts OR have been fully or partially suspended due to COVID-related government orders. For 2020, the credit is equal to 50% of qualified wages paid to employees, up to a maximum credit of $5,000 per employee. However, in 2021, the credit was increased to 70% of qualified wages, up to a maximum credit of $21,000 per employee for the year.
To apply for the ERC for more than one quarter, an owner must document their eligibility for each quarter. You must show that your business experienced a significant decline in gross receipts or was fully or partially suspended due to government orders for each quarter. Of course, the business must also have paid qualified wages to employees during each quarter.
Once eligibility is determined for more than one quarter, you will want to work with a professional ERC firm like ERC Specialists to file an amended tax return for each quarter. This involves filling out Form 941-X, which is used to correct errors on previously filed 941 Forms. A separate Form 941-X for each quarter claiming the credit will be required, including a detailed calculation of the credit for each quarter.
What Is The Deadline?
To claim the ERC for 2020 wages, the deadline is April 15, 2024. For wages paid in 2021, the ERC filing deadline is April 15, 2025. The details can be complicated to navigate because of many interacting factors like owner wages, aggregate rules, and PPP funds, which is why experts recommend using a vendor with deep experience like ERC Specialists to guide you through the process.
It's important to note that the ERC is a refundable tax credit, which means that if the credit exceeds the amount of taxes owed, the excess credit will be refunded to the business. This makes the ERC an attractive incentive for businesses that have experienced financial struggles due to the pandemic.
How Easy Is It?
Applying for the ERC for more than one year is relatively straightforward, but it does require careful record-keeping, substantiation, and attention to detail. A trustworthy ERC vendor will make sure that all necessary documents and calculations are completed and that all required forms are filled out correctly. Most businesses find that applying for the ERC for more than one year is, indeed, worth the effort.
The Employee Retention Credit is a valuable incentive for businesses that have been impacted by the COVID-19 pandemic. If you're eligible for the credit for more than one year, it's important to make sure that you meet the eligibility criteria for each quarter and that you file an amended income tax return for each year that you're claiming the credit. Reach out to the experts at DUB Financial to discover if there may be additional quarters of eligibility available to you.
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