How To File Your Employee Retention Credit Today (2023)

The business landscape has seen unprecedented challenges in recent years due to the COVID-19 pandemic. To provide financial support to affected businesses, the U.S. government introduced the Employee Retention Credit (ERC) as part of the CARES Act in March 2020. This tax credit has been a lifeline for many enterprises, helping them maintain their workforce and cover essential expenses during these trying times.

This guide will delve into the details of the ERC, offering insights into how it works, who qualifies, and the process of filing for this essential financial aid. Additionally, we’ll explore the interaction of ERC with other COVID-19 relief programs and provide valuable information about getting ERC funds upfront. Whether you’re a business owner seeking assistance or an individual curious about this program, read on to understand the ERC and how it can benefit those who qualify.

What is the Employee Retention Tax Credit?

The Employee Retention Credit (ERC) is a tax credit designed to support businesses that faced challenges during the COVID-19 pandemic. It was introduced as part of the CARES Act in March 2020 and is aimed at businesses that continued to pay their employees despite pandemic-related shutdowns or experienced a significant decline in gross receipts during specified periods in 2020 and the first three quarters of 2021.

One key feature of the ERC is that it’s a refundable tax credit, meaning eligible businesses don’t have to repay it. It’s designed to provide financial relief to businesses that met specific criteria during the pandemic. While it can be a substantial source of assistance, it’s important to note that it is not available to individuals.

Who Qualifies for the ERC?

Determining whether your business qualifies for the ERC involves several criteria. To simplify, let’s break down the high-level questions you should ask:

Employee Count. Did your business have 1-100 full-time W-2 employees on payroll during 2020-2021 or between 1-500 full-time W-2 employees in 2021, excluding majority owners or relatives?
Revenue Decline. Did your business experience a 50% revenue decline in 2020 compared to the same calendar quarter in 2019 or a 20% in 2021 compared to the same calendar quarter in 2019?
Government Shutdown. Did your business experience a partial or total government shutdown significantly affecting its operations? Can you provide a relevant governmental order to support this claim? Did your business undergo any changes or disruptions due to these mandates, such as altered business hours, supply chain disruptions, or social distancing requirements?

If you answered “yes” to the first question and either the second or third question, it’s advisable to explore whether your business prequalifies for the ERC.

The Process of Claiming the ERC

Claiming the ERC can be a complex endeavour, considering the intricacies of the program’s rules and regulations. Here are the essential steps involved:

Gather Documentation. Collect detailed records related to your eligibility for the ERC. This includes information on the number of employees, qualified wages paid during specific periods, revenue decline percentages, and any government shutdown orders that impacted your operations.
File Correctly. To claim the ERC, eligible employers must report the tax credit on their federal employment tax returns, typically through an amended Form 941-X. Ensure that you accurately calculate and document qualified wages and other relevant information for claiming the credit.
Professional Assistance. To navigate the complexities of ERC guidelines successfully, consider working with experienced tax specialists or advisors. They can assist you in understanding eligibility requirements, preparing documentation, and ensuring a smooth claims process.
Record-Keeping. Maintain meticulous records of all aspects related to your eligibility and ERC claim. These records will serve as crucial evidence in case of IRS audits or reviews.

Following these steps and seeking professional assistance when needed, business owners can confidently navigate the ERC claiming process, maximizing their financial relief during challenging times.

ERC Funds: When and How?

One of the common questions businesses have is about the timeline for receiving ERC funds. Most businesses can expect a wait time of 6-12 months for their ERC funds to be processed by the IRS. While some businesses may receive their funds sooner or later, the backlog at the IRS has contributed to these varying timelines.

It’s important to note that larger ERC awards, particularly those exceeding $250,000, tend to take longer to process than smaller ones. The IRS has faced substantial challenges in processing the high volume of ERC claims, as evidenced by significant backlogs in recent months.

However, there is an alternative for those who prefer not to wait. Businesses can receive an ERC Advance by selling their ERC asset to a bank or financial institution. This allows them to access their funds quickly, bypassing the extended IRS processing time. The institution typically collects the necessary paperwork and completes the underwriting process in approximately seven days. Fees for this service can range from 11% to 30% or more, depending on the complexity and perceived risk of the ERC claim.

Choosing the Right ERC Processor

Selecting an ERC Processor is a critical decision in claiming the tax credit. Not all processors are the same; working with the right one can significantly impact your experience. Here’s what to look for in a great ERC Processor:

Eligibility Paths: A reputable ERC Processor should thoroughly evaluate your eligibility through the “revenue decline” and “partial or full shutdown” paths. While the former involves straightforward calculations, the latter requires additional analysis and interpretation.
Comprehensive Reporting: Your chosen processor should provide a comprehensive report outlining how your business qualifies for the ERC. This report should also include payroll calculations justifying your ERC amount. The report should reference the relevant governmental orders if you’re claiming based on a partial or complete shutdown.
Experience: Consider processors with a track record of handling a significant number of ERC claims, preferably over 1,000. High-volume processors have refined their processes, resulting in faster submissions to the IRS and quicker fund disbursement.
Fee Structure: Reputable processors typically charge a contingency (success) fee ranging from 15% to 25%, depending on the size and complexity of the ERC claim. Be cautious of processors with exorbitant fees exceeding 30%.

Is the Employee Retention Credit for you?

In conclusion, the Employee Retention Credit (ERC) has been a vital aspect for businesses navigating the challenges brought on by the COVID-19 pandemic. Understanding the eligibility criteria, claiming process, and options for expediting ERC funds is crucial for businesses seeking financial relief.

While waiting for ERC funds to be processed by the IRS can take several months, businesses can explore ERC Advance programs offered by financial institutions. Choosing the right ERC Processor is equally essential, as they play a significant role in ensuring a smooth and successful ERC claim process.

Despite the complexities and challenges, the ERC program remains a legitimate and substantial source of financial support for eligible businesses. By following the guidelines, seeking professional assistance, and selecting a suitable processor, businesses can make the most of this opportunity to sustain their operations, pay employees, and invest in their future growth.