Written by Cassidy Jakovickas CPA
Like many people, you’ve probably been paying attention to the latest updates about the Employee Retention Credit (ERC) since 2020. Unfortunately, between the numerous updates to the ERC and the clever lies of ERC fraudsters, there is a large amount of misinformation surrounding the ERC tax credit that causes many people to overlook their potential eligibility.
For example, a common ERC misnomer is that, because the Infrastructure Investment and Jobs Act terminated the ERC on September 30 of 2021 for all except Recovery Startup Businesses, it is no longer possible to get the ERC. But, if you meet the eligibility requirements, you can retroactively claim the ERC for your business for 2020, 2021, or both. Based on the instructions provided by the IRS for Form 941-X, the general statute of limitations for the ERTC are April 15, 2024 for qualifying 2020 quarters and April 15, 2025 for qualifying 2021 quarters.
Make sure you pass the gross revenue test or suspended operations test
Before you claim the Employee Retention Credit, you must pass either the gross revenue test or the suspended operations test. Under the gross revenue test, you can be eligible for the ERC if your revenue decreased by at least 50% for any 2020 quarter or 20% for any 2021 quarter, when compared to the corresponding quarter in 2019.
If you don’t qualify for the ERC under the gross revenue test, you can look at the suspended operations test. To qualify this way, you must have fully or partially closed your business because of a government order. The suspended operations test includes a lot of gray areas so here are some key points to consider:
- The affected portion of your business must be a nominal portion of your business, comprising either 10% or more of your total receipts or total service hours worked.
- The government order must have been enacted in response to COVID-19.
- Definitions for an ERC-eligible shutdown depend on your unique circumstances and industry. Occupancy restrictions might fulfill the “more than nominal” impact test for a restaurant, but not for a retail store (see Answer 18 in Notice 2021-20).
To learn more about the suspended operations test for ERC eligibility, you can read My business was suspended. Do I qualify for the ERC?
Calculate your qualified wages
Once you’ve determined that you’re eligible for the ERC tax credit, either through the gross revenue test or suspended operations test, you can calculate your qualified wages. Qualified wages include wages paid during ERC-eligible quarters in 2020 and 2021. Your ERC amount depends on your amount of qualified wages and company size, as shown below:
- 2020 (100 employees or fewer): You can claim up to 50% of wages paid to working and non-working employees during the ERC-eligible quarters.
- 2020 (over 100 employees): You can only claim 50% of wages paid to non-working employees during ERC-eligible quarters.
- 2021 (500 employees or fewer): You can claim up to 70% of wages paid to working and non-working employees during ERC-eligible quarters.
- 2021 (over 500 employees): You can only claim up to 70% of wages paid to staff who didn’t work during eligible quarters.
Adjust your payroll tax return and document why you’re eligible
Now that you know how much you can save with the ERC tax credit, it’s time to claim it. You can claim the Employee Retention Credit by filing an adjusted quarterly payroll tax return (Form 941X) for each qualifying quarter. You’ll need to decrease your deductible wages on your income tax return by your ERC credit amount. It’s also important to document your ERC eligibility since the IRS plans to investigate ERC claims for fraud in the coming years.
Do you need help with the Employee Retention Tax Credit?
If you’ve overlooked the ERC tax credit until now, I’d strongly recommend exploring your eligibility. I’d recommend learning the signs of an ERC fraudster and asking for ERC help from a trustworthy professional with a proven track record and sterling reputation. At MBS Accountancy, here are some recent amounts we’ve claimed for our ERC clients:
- A small nonprofit with 14 employees received $90,610 after we found them eligible for all 2020 quarters and the first three quarters of 2021.
- A hotel brand received $484,948 after we verified their eligibility for 2020 and the first two quarters of 2021.
- A janitorial company received $228,000 after we found them eligible for the ERC for the first 3 quarters of 2021.
If you’re interested in the Employee Retention Credit, check out our Employee Retention Credit Services! It’s an amazing tax opportunity that you deserve to understand and, if eligible, maximize for your business.
Cassidy Jakovickas, CPA, is president and CEO of MBS Accountancy Corp. in Downtown Fresno.