Posted by Jeffrey Feingold on 08.30.23
Time is of the essence for businesses looking to take advantage of the Employee Retention Credit (ERC). As the deadline for claiming this valuable tax credit draws near, it's crucial for business owners and employers to understand the benefits, eligibility criteria, and how to navigate the process.
Understanding the Employee Retention Credit (ERC)
The Consolidated Appropriations Act 2021, was signed into law on December 27, 2020. Among many changes and updates to the prior relief legislation for COVID-19, this law clarifies and expands the Employee Retention Tax Credit (ERTC) that was created by the CARES Act established in March of 2020. One of the bigger changes in the law is the Employee Retention Tax Credit (ERTC) is now available for employers who previously received a Paycheck Protection Program(PPP) loan. This change in the law provides significant benefits to employers, helping them during the economic disruptions stemming from the pandemic of COVID-19. The Employee Retention Tax Credit (ERTC), another portion of the CARES Act, was designed to incentivize businesses to keep employees on their payroll during the COVID-19 pandemic.
How Much is the Tax Credit Worth?
For wages paid after March 12, 2020, and before January 1, 2021, the ERTC can be applied to 50% of qualifying wages up to $10,000. Meaning a maximum of $5,000 per employee could be credited back to your company if it qualifies. For wages paid after January 1, 2021, and before October 1, 2021, the ERTC can be applied to 70% of qualifying wages of up to $10,000 per quarter. Meaning companies could receive a maximum of $21,000 per employee through September 30.
Key Benefits of the ERC
• Financial Relief: The ERC provides eligible employers with a tax credit that can be used to offset employment taxes. This credit can help businesses free up funds that can be directed towards other essential expenses.
• Employee Retention: By offering financial incentives to retain employees, the ERC helps businesses maintain their workforce, even during challenging economic times. This not only benefits employees but also ensures that businesses are well-positioned for recovery.
• Flexible Use: The credit can be applied to a variety of employment taxes, including the employer's share of Social Security taxes. This flexibility allows businesses to adapt the credit to their specific financial situation.
Eligibility Criteria
To qualify for the ERC, businesses must meet certain eligibility criteria, which include but are not limited to:
It's essential to review the specific eligibility requirements and consult with a tax professional to determine if your business qualifies.
Act Now Before It's Too Late
The ERC has been a lifeline for many businesses struggling during the pandemic. However, it's important to note that the availability of this credit is time-sensitive. The deadlines for claiming the Employee Retention Credit (ERC) in 2023 are crucial for businesses to be aware of. For eligible quarters in 2020, the deadline is April 15, 2024, while for eligible quarters in 2021, the deadline is April 15, 2025. The window for claiming the ERC is closing, and if you don't act before the deadline, you could miss out on significant financial relief.
Steps to Take
Assess Your Eligibility: Determine whether your business meets the eligibility criteria for the ERC. This might involve analyzing your financial records, employee headcount, or a government mandate that may have prevented operations, either in hours or service capacity.
Gather Documentation: Collect the necessary documentation to support your ERC claim. This could include financial statements, payroll records, and any relevant government orders.
Calculate the Credit: Work with tax professionals like Tax Point Advisors, to accurately calculate the amount of credit your business is eligible for. This ensures you're claiming the correct amount and maximizing the benefit.
File on Time: Ensure that you file the necessary forms before the deadline. Delays can result in missing out on the credit, so it's important to take prompt action.
The Employee Retention Credit has been a valuable resource for businesses navigating the challenges brought about by the pandemic. As the deadline for claiming this credit approaches, it's essential for eligible businesses to act quickly and take advantage of the financial relief it offers. By understanding the eligibility criteria, gathering the required documentation, and seeking professional guidance, you can ensure that your business doesn't miss out on this opportunity. Don't wait until it's too late—seize the moment and secure the benefits of the ERC before the deadline passes.
Coordinating with a taxpayer’s payroll processing company Tax Point Advisors can help you determine whether your business’ activities meet the qualifications by conducting a free assessment. To learn more about tax benefits from the Employee Retention Tax Credit you may call us at (800) 260-4138 nationwide.
