Tax Credits

How To Apply For Employee Retention Credit (ERC) (June 2023)

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Are you looking for a guide on how to apply for and claim your Employee Retention Credit (ERC)? You’ve come to the right place.

The ERC is a valuable tax credit that has undergone changes and amendments over the years, expanding its eligibility criteria and benefits. Even if you missed out on claiming the credit in previous years, there is still an opportunity to take advantage of it.

Retroactive claims can be made, allowing eligible companies to benefit from the ERC for the periods they previously missed. Moreover, for those who qualify as recovery startup businesses, there are specific provisions tailored to their unique circumstances.

In this article, we walk through the process of applying for the Employee Retention Credit. We also provide insights into the latest updates and amendments, share tips for a smooth application process, and highlight some of the best ERC companies and services available.

What Businesses Qualify for the ERC?

Determining whether your business is eligible for the Employee Retention Credit (ERC) is the first step towards unlocking its potential benefits. The Internal Revenue Service (IRS) provides clear criteria to qualify for the ERC, giving you two paths to explore:

  1. Full or partial suspension of operations: If your business faced limitations due to COVID-19, such as restrictions on commerce, travel, or group meetings, and received orders from a relevant governmental authority in 2020 or 2021, you may qualify.
  2. Significant decline in gross receipts: If your business experienced a substantial decline in gross receipts during 2020 or the first three quarters of 2021, you may be eligible. Note that there are differences in the ERC for 2020 and 2021. Specifically, if your gross receipts for a specific quarter were at least 50% less than the same quarter in 2019 (for 2020 quarters) or 20% less than the same quarter in 2019 (for 2021 quarters), you meet the criteria.

Additionally, for the third or fourth quarters of 2021, there is an alternative pathway. If you are a recovery startup business, you may qualify for the ERC.

Determining your eligibility is essential to take advantage of the ERC’s potential benefits. Consult the IRS guidelines or seek advice from a tax professional to determine if your business qualifies.

Who Qualifies as Eligible Employees for the Credit?

The eligibility criteria for the Employee Retention Credit (ERC) vary depending on the year and the size of your workforce. Here’s an overview of the qualifications for eligible employees:

2020 Employee Count:

  • For businesses with 100 or fewer full-time employees in 2019, all employee wages were eligible for the credit calculation, regardless of whether they were still working or furloughed.
  • For businesses with more than 100 average full-time employees in 2019, only the wages of furloughed or reduced-hour employees due to closure or reduced sales qualified for the credit.

2021 Employee Count:

  • Amendments were made for 2021, expanding the maximum credit eligibility. Now, the credit applies to wages paid to 500 or fewer average full-time employees in 2019, regardless of whether they were providing services or not.
  • For businesses with more than 500 average full-time employees in 2019, the maximum credit on qualified wages for employees not providing services was increased.

Applying for ERC

If you haven’t yet applied for the Employee Retention Credit (ERC), don’t worry. Even though the ERC was initially set to expire on October 1, 2021, eligible businesses can still take advantage of this tax relief opportunity.

You may apply for ERC retroactive claims, allowing you to claim the credit for previous periods. The IRS has extended the filing deadlines until 2025, providing ample time for eligible companies to apply.

To apply for the ERC retroactively, follow these steps:

  1. Obtain Form 941-X: To claim the credit, eligible businesses need to file Form 941-X, also known as the Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. This form allows you to amend previous quarterly tax returns and request the ERC.
  2. Gather Documentation: Collect all the necessary documentation to support your claim, including payroll records, employee count, and any relevant financial information.
  3. Complete the Form: Fill out Form 941-X accurately and ensure that you include all relevant details, such as the specific calendar quarters for which you are claiming the credit.
  4. Submit the Form: Once the form is completed, submit it to the IRS according to their instructions. Be sure to double-check that all information is accurate and attach any required supporting documents.

By following these steps, eligible businesses can apply for the ERC retroactively and potentially receive significant tax credits to support their recovery and ongoing operations.

Applying for ERC as a Recovery Startup Business

Applying for the ERC as a recovery startup business involves accurate documentation and calculation of eligible expenses. Here’s a step-by-step guide:

  1. Determine eligibility: Ensure that your trade or business meets the required criteria for a recovery startup business.
  2. Gather documentation: Maintain proper documentation to support your eligibility for the ERC. This includes invoices, payrolls, financial statements, and any other relevant documents.
  3. Calculate qualified wages: Identify eligible employees and calculate their qualified wages. Note that for recovery startup businesses, the credit maximum is capped at $50,000 per quarter. The ERC for recovery startup businesses is applicable only to Q3 and Q4 of 2021.
  4. Submit necessary forms: To apply for the ERC, you’ll need to amend your employment tax returns. For retroactive filing, locate the employer payroll tax return you filed for the specific quarter and file a Form 941-X to amend that tax return.

Key Dates to Remember for ERC Applications

If you have not yet utilized this credit, there is still an opportunity to retroactively apply and potentially benefit from it. It’s crucial to adhere to these filing deadlines to ensure you don’t miss out on the opportunity to claim the ERC for eligible quarters.

For the 2020 tax year (Q1-4): To claim the ERC for any quarter in 2020, you must file your claims by April 15, 2024. This deadline allows eligible businesses to retroactively apply for the credit and receive the financial relief they are entitled to.

For the 2021 tax year (Q1-4): For any quarter in 2021, ERC claims must be filed by April 15, 2025. This extended deadline provides businesses with ample time to retroactively apply for the credit and take advantage of the financial support it offers.

Best ERC Specialist Companies and Services

Navigating the complexities of the employee retention credit can be a daunting task. With eligibility requirements, calculations, and documentation to consider, it’s understandable if you’re unsure about the process. That’s where ERC specialists can provide valuable assistance, guiding you through the application process and maximizing your potential benefits.

To help you in your search for reliable ERC support, we have compiled a list of the top ERC companies and services. These organizations specialize in ERC consulting and can offer expert advice tailored to your specific situation. Whether you need help determining eligibility, calculating qualified wages, or navigating the necessary documentation, these companies have the expertise to assist you.

Below, you’ll find a table showcasing the best ERC companies and services.

Omega Bottom Line ConceptsERC AssistantERC SpecialistsLendio
Qualifying ProcessFree 10 minute consultationShort form and phone callQualification quizDetailed qualification questionnaireSimple eligibility questionnaire
Best ForFast fundingReputable serviceFast applicationsHigh refundsNo hidden fees
Processing TimeNot ListedNot ListedNot ListedFast results25 days to file on average
FeeUndisclosedUndisclosedUndisclosed10 – 15% of refund15% of refund
Bridge Loan AvailabilityYesNoNoNoYes

Common Mistakes to Avoid: Tips for a Smooth ERC Application Process

When applying for the Employee Retention Credit (ERC), it’s important to be aware of common mistakes that can hinder the smooth processing of your application. By avoiding these pitfalls, you can increase your chances of a successful and efficient ERC application process. Here are some tips to help you navigate the process smoothly:

  1. Inaccurate or incomplete documentation: Ensure that you have all the necessary documentation to support your eligibility and calculations. This includes payroll records, financial statements, invoices, and any other relevant documents. Double-check that the information is accurate and complete to avoid delays or potential rejections.
  2. Missed filing deadlines: Pay close attention to the deadlines for filing ERC claims. Missing the filing deadline can result in the loss of potential credits. Set reminders and establish a system to ensure timely submission of your applications.
  3. Incorrect calculation of qualified wages: Properly calculate the qualified wages for eligible employees based on the guidelines provided by the IRS. Errors in wage calculations can lead to inaccurate credit amounts and potential issues during the application process.
  4. Lack of understanding of eligibility criteria: Thoroughly review the eligibility criteria for the ERC to determine if your business qualifies. Familiarize yourself with the specific requirements, such as experiencing a significant decline in gross receipts or a full or partial suspension of operations, to avoid applying incorrectly.
  5. Failure to seek professional assistance: Consider consulting with tax professionals or ERC specialists who have expertise in navigating the application process. They can provide guidance, ensure accuracy, and help you maximize your eligible credits.

Summary

Applying for the Employee Retention Credit (ERC) can be a complex process, but with the right knowledge and guidance, you can navigate it successfully. Understanding the recent changes to the ERC and its eligibility criteria is crucial before applying. Be sure to stay informed about the latest updates to ensure you meet the requirements.

Additionally, staying mindful of deadlines is essential. Create a timeline to help you stay on track with the application and processing of your ERC. Missing deadlines can result in missed opportunities to claim the credit, so it’s important to be organized and proactive.

Consider consulting with a professional who specializes in ERC applications. Their expertise can provide valuable insights, help you understand the intricacies of the process, and ensure accurate calculations and documentation.

By taking the time to educate yourself on the ERC, staying organized with deadlines, and seeking professional guidance, you can increase your chances of a successful application and maximize the benefits for your business. The Employee Retention Credit can be a valuable resource, so make sure to approach the application process with the right information and support.