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How should the Employee Retention Tax Credit be claimed
Posted: Feb 01, 2023
1. Establish eligibility for your small business
In general, you should investigate the ERTC if your company was affected by the pandemic and had 500 or fewer employees in 2019. If your company was forced to close entirely or partially as a result of government regulations, or if you saw a decline in sales as a result of the pandemic, you should also look into this credit.
Steven has seen firsthand how much the ERTC helps the companies he works with. One company received roughly $60,000 in 2020 and an additional $60,000 in the first quarter of 2021, while a different company received roughly $30,000 in 2020 and an additional $30,000 in 2021. Both of these were small businesses with fewer than 12 employees and lower six figure annual revenue.
2. Ask your CPA, accountant, or bookkeeper to assist your business
If your company qualifies, your accountant will assist you in obtaining it. However, don't assume they've already done the research for you. Take initiative. We're talking about substantial tax credits that you might otherwise pass up. Speak with an authority on the subject. If you don't, there's a chance that you'll pass up sizable savings.
3. PPP loans and other grants qualify businesses for the ERTC
Since you couldn't legally use the ERTC and forgivable PPP loans at the same time, the vast majority of employers chose PPP loans when the CARES Act was first passed in March 2020.
This was altered by the Consolidated Appropriations Act, though. With the caveat that you couldn't "double-dip," it changed the original restriction and permitted small businesses with PPP loans to also claim the ERTC. This means that the same eligible wages cannot be claimed for both the ERTC and PPP loans.
The most crucial thing to remember is that receiving PPP loans no longer automatically disqualifies you from the ERTC. You'll want to discuss it with your accountant.
4. Check 2020 employee retention credit retroactively
Make sure you and your bookkeeper or accountant also look backward to 2020. You might be eligible for the 2020 employee retention credit if your gross receipts experienced a significant quarterly decline or if you were temporarily or permanently closed down by government order.
The bottom line is that you must investigate whether your small business might qualify for the ERTC if you have employees. Don't be afraid to try another tax professional and speak to someone who is knowledgeable about it if your tax professional is unsure of how to help. Hold onto it.
5. Recovering startup companies are also qualified
As a recovery startup business, you may also be eligible for the employee retention tax credit if you launched your company during the pandemic. Your company had to launch after February 15, 2020, and its annual gross revenue had to be less than $1,000,000. If your company is eligible, you might be able to receive a credit for the third and fourth quarters of 2021 that is up to $50,000 per quarter. Discuss the specifics and ask your bookkeeper or tax preparer to walk you through the procedure.
6. Apply for the Employee Retention Tax Credit
Since the deadline for submitting Employee Retention Tax Credit refund claims was extended, there is still time to do so. For claims for 2020 ERTC refunds, you can now file an amended 941-X until April 15, 2024, and for claims for 2021 ERTC refunds, you can do so until April 15, 2025.
Remember that the ERTC refunds you receive are taxable, so you'll also need to make changes to your company's income tax returns. Be sure to accurately adjust your figures because the IRS has noticed that businesses don't reduce their wage deductions on their federal income tax returns by the amount of the ERTC credit that they receive.
You can file an amended tax return if you unintentionally overstated your wage deductions to avoid penalizing your company.
7. How long will it take?
So, how long does it take to get employee retention tax credit? The process for claiming the Employee Retention Tax Credit (ERTC) and the speed of processing by the appropriate tax authority are two of the variables that affect how long it takes to receive the credit. In general, after filing a tax return to claim the credit, it may take a few weeks or months to get your money back. A few weeks or less may pass before receiving the credit if the credit is claimed through lowered payroll tax deposits.
Ricky is a graduate of computer science engineering, a writer and marketing consultant. he continues to study on Nano technology and its resulting benefits to achieving almost there.