How to Get Your ERC Faster In 2024

April 3, 2024

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The Employee Retention Credit (ERC) is a refundable tax credit introduced under the CARES Act to provide financial relief to business owners during the COVID-19 pandemic. This incentive encourages employers to keep their staff on payroll, despite the disruptions and shutdowns caused by the coronavirus. While many consider the pandemic over, the ERC benefit is still available and this comprehensive guide will discuss how to get your Employee Retention Tax Credit faster, focusing on eligibility, the application process, and tips for navigating the Internal Revenue Service (IRS) backlog.

What is the Employee Retention Credit (ERC)?

The Employee Retention Credit (ERC) is rooted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law by then-President Donald Trump on March 27, 2020. The CARES Act was a comprehensive $2.2 trillion economic stimulus package designed to address the unprecedented economic and health crisis caused by the COVID-19 pandemic. The primary aim of the ERC was to provide financial relief to businesses and non-profit organizations struggling to retain their workforce amidst the widespread shutdowns and economic disruptions.

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The ERC was created as a refundable tax credit, offering eligible employers a payroll tax credit for qualified wages paid to employees during the pandemic. By incentivizing businesses to retain their employees, the ERC aimed to mitigate the surge in unemployment rates and provide some level of stability to the labor market during a time of great uncertainty.

The initial version of the ERC under the CARES Act allowed eligible employers to claim a credit of up to 50% of qualified wages paid, with a maximum credit of $5,000 per employee. However, as the pandemic continued and its economic impact deepened, lawmakers recognized the need for further financial relief measures.

In response, the Consolidated Appropriations Act of 2021, signed into law on December 27, 2020, extended and expanded the ERC, increasing the credit rate to 70% of qualified wages and raising the maximum credit per employee to $7,000 per quarter. The American Rescue Plan Act, signed by President Joe Biden on March 11, 2021, extended the ERC again through December 31, 2021.

The ERC has been an essential lifeline for many businesses and non-profit organizations, providing much-needed financial relief and helping to maintain employment levels during the ongoing COVID-19 pandemic.

Eligibility for the ERC

Eligible employers include those that experienced a significant decline in gross receipts during a calendar quarter or faced a full or partial shutdown due to a government order related to the pandemic. Additionally, the Consolidated Appropriations Act introduced the Recovery Startup Business provision, which extends ERC eligibility to new businesses that began operations after February 15, 2020.

Gross Receipts and Significant Decline

To determine a significant decline in gross receipts, employers must compare their gross receipts for a given calendar quarter with the same quarter in 2019. If the employer’s gross receipts for the quarter are less than 50% of those in the same quarter in 2019, they have experienced a significant decline and are eligible for the ERC.

Qualified Wages and Employee Count

Qualified wages include salaries, tips, and other compensation paid to employees and the cost of providing health benefits. Calculating qualified wages depends on the number of full-time employees an employer has. For small businesses with fewer than 100 full-time employees, all employee wages qualify for the ERC, regardless of whether the employee is working or not. For larger businesses with 100 or more full-time employees, only wages paid to employees not providing services due to the pandemic-related disruptions qualify for the credit.

Understanding the ERC Process

To claim the ERC, business owners must submit payroll tax returns (Form 941) with the IRS, detailing the qualified wages paid to their W-2 employees. If the business is eligible for the ERC, the IRS will credit the amount against the employer’s payroll tax liability. If the credit exceeds the payroll tax owed, the excess is refundable, meaning the IRS will issue an ERC refund to the employer.

Businesses that have already filed their tax return without claiming the ERC can submit amended returns using Form 941-X. However, this process can be time-consuming and may lead to further delays in receiving the tax credit.

Tips for Getting Your ERC Faster in 2024

  1. Understand the ERC eligibility criteria: Business owners should review the IRS guidelines and FAQs to ensure they meet the eligibility requirements before applying for the ERC. This includes understanding the definitions of a significant decline in gross receipts, qualified wages, and government orders related to the pandemic.

  2. Consult with a CPA: Engaging the services of a Certified Public Accountant (CPA) can help businesses navigate complex ERC rules and requirements. CPAs can provide valuable insights into the eligibility criteria, appropriate documentation, and potential interactions between the ERC and other relief programs like the Paycheck Protection Program (PPP) loan.

  3. Prepare accurate and complete tax forms: Ensuring that your payroll tax returns and other related tax forms are accurate and complete can help prevent delays in processing your ERC claim. Businesses should gather all necessary documentation, such as payroll records, proof of a significant decline in gross receipts, and evidence of government orders that led to a full or partial shutdown.

  4. File Form 941-X promptly: If you’ve already filed your tax return without claiming the ERC and later discover you’re eligible, submit Form 941-X as soon as possible. The sooner you file the amended return, the faster the IRS can process your claim and issue your ERC refund.

  5. Monitor the status of your ERC claim: Keep track of your ERC claim by regularly checking the IRS website for updates on processing times, backlogs, and other relevant information. Being proactive can help you address any potential issues early on, improving your chances of receiving your ERC faster.

  6. Seek assistance from ERC providers: Several third-party providers offer services to help businesses navigate the ERC process, from determining eligibility to filing the appropriate tax forms. These providers can save business owners time and effort, ensuring that their ERC claims are submitted correctly and efficiently.

  7. Stay informed about legislative changes: As the pandemic continues to evolve, so do the relief programs available to businesses. Stay up-to-date with any changes to the ERC program, such as adjustments to eligibility criteria or credit amounts, by regularly checking the IRS website or consulting with your CPA.

  8. Maximize your ERC benefits: To get the most out of your ERC claim, consider strategies to maximize your credit, such as adjusting payroll to ensure that all qualified wages are included in your claim. Your CPA or tax advisor can help identify the best strategies for your business.

  9. Understand the interaction between ERC and PPP loans: Businesses that received a Paycheck Protection Program (PPP) loan must ensure that they do not double-dip by claiming the ERC for wages already covered by the PPP loan. Consult your CPA or tax advisor to determine the best approach for claiming both benefits without violating the regulations.

  10. Be patient and persistent: The IRS is currently dealing with a backlog of ERC claims and other tax-related matters due to the pandemic. While the process may be slower than usual, persistence and patience are crucial for ensuring that your claim is processed and your ERC refund is received.

The Employee Retention Credit is a valuable resource for business owners seeking financial relief during these challenging times. By understanding the eligibility requirements, staying informed about program updates, and following best practices for submitting your claim, you can increase your chances of receiving your ERC faster in 2024. With the support of a CPA or tax advisor, your business can continue to navigate the pandemic and emerge stronger on the other side.

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