EMPLOYERS … HOW TO CLAIM THE EMPLOYEE RETENTION CREDIT RETROACTIVELY!
How to Claim the Employee Retention Credit… Retroactively!
The Employee Retention Credit (ERC) is an $80 billion dollars tax savings program. Included in the CARES Act, the ERC offered tax credits to encourage employers to retain employees at the height of the COVID-19 pandemic in March 2020. The driving principle for Congressional adoption of the incentive was to help pandemic-impaired businesses and tax-exempts to retain jobs and trigger job creation.
Regrettably, many of those employer benefit candidates have ignored participation in the program. That triggered a major loss to willing workers who have been displaced or are about to be. Likewise, employers suffer when they are unable to maintain their pre-pandemic payroll which further impairs their success in recovering from the financial ravages of C-19 and prevail as viable enterprises.
Many employers were and are confused as to qualification requirements and application procedures. As noted above, the ERC was included as a provision in the CARES Act. Added fuel for the confusion is the Paycheck Protection Program (PPP) which was enacted in that legislation as well. The unintended consequence for a significant number of employers was and is the belief that it was an either/or choice … ERC or PPP.
Note: Employers who received a PPP) loan are eligible to claim the ERC. However, there are restrictions … e.g., the employer cannot claim the same expenses for both programs.
A second area of qualification-confusion surfaced. Many business owners and tax-exempt managers incorrectly interpreted the rules. The first misconception was that to qualify an enterprise must have suffered a 50 percent reduction in revenues … not so. There are two alternate tests to qualify:
- a revenue test, or
- demonstration that your operating entity was significantly and negatively impacted by government order, e.g., a partial or full shutdown due to a government order at the federal, state, municipality, county or other local level authority.
With this knowledge of qualification criteria, hundreds of businesses and tax-exempt organizations have applied for and been approved for ERC assistance under one or another of the above tests. Notably, for employers that have not yet applied, the ERC can be claimed for three years after the filing date of the original payroll returns.
For employers with 500 or fewer employees,
this presents an opportunity to retroactively claim these credits.
Takeaways
Employers who qualify and have not yet claimed their ERC are urged to adopt a sense of urgency to do so. The 3-year window after the filing date of the original payroll returns that ERC can be claimed is on the horizon.
Of considerable financial significance, the 2020 credit can be as much as $5,000 per employee … the 2021 credit up to $21,000 per employee.
Give Pearson & Co a call or drop an email to determine if you qualify
… and if so, how to submit a claim.
