The Employee Retention Credit (ERC) has been a vital lifeline for countless businesses grappling with the unprecedented challenges posed by the COVID-19 pandemic. Whether you’ve already received your ERC refund or are exploring your eligibility, it’s essential to understand that the ERC filing process only concludes with the arrival of the refund check. This article delves into the next steps you should take after receiving your ERC refund, ensuring compliance with IRS guidelines and maximizing the benefits of this crucial program.
Understanding the ERC Filing Process
The ERC refund program was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. Designed to provide economic relief to businesses affected by the pandemic, it allows businesses to claim a refund for eligible quarters in 2020 and 2021. To qualify for the ERC, businesses must meet one of two criteria during an eligible quarter:
Experienced a significant decline in gross receipts
Fully or partially suspended operations due to governmental mandates.
Once you have reviewed the ERC qualifications and determined your business’s eligibility, the next step is to file Form 941-X with the IRS for the eligible quarters. This form allows you to adjust previously submitted quarterly tax returns and claim the ERC refund you’re entitled to.
Extending the ERC Filing Deadline
Although the ERC program officially ended in September 2021, eligible businesses can still submit Form 941-X to receive the ERC refund retroactively. According to IRS guidelines, “For purposes of the period of limitations, Forms 941 for a calendar year are considered filed on April 15 of the succeeding year if filed before that date.” Therefore, businesses can claim ERC funds for eligible quarters in 2020 until April 15, 2024, and for eligible quarters in 2021 until April 15, 2025.
Next Steps After Receiving Your ERC Refund
ERC refunds take between 4 to 12 months to reach employers’ mailboxes. However, many business owners need to be made aware of the additional steps needed once the checks arrive. IRS guidelines state that amending your business’s returns, and potentially your ones, should be done as soon as possible after receiving your ERC refund to avoid potential penalties.
Impact on Personal Returns
If your business operates as a corporation, specifically an S-Corp, Partnership, LLC, or Sole Proprietorship, the ERC refund may affect your tax returns. The impact extends to:
- All S-Corp members
- All partners in a partnership
- All members of an LLC
- Sole proprietors
- It’s crucial to amend your returns by the ERC refund you received to maintain IRS compliance and avoid potential issues.
State Tax Returns
In addition to federal amendments, you may also need to amend your state income tax returns. The ERC refund can influence your state tax returns by reducing the amount of wages deducted from your taxable income, leading to an increased state-taxable income. Each state may have specific requirements and guidelines for ERC-related amendments, so reviewing your state’s regulations carefully is essential.
Conclusion and Next Steps
Navigating the ERC refund process can be complex, but having a trusted partner who understands the intricacies of the ERC program can make it more manageable. I take a proactive and compliance-first approach to tax planning. My technology-enabled tax solutions provide accurate, compliant, and hassle-free tax filings, offering you peace of mind throughout the process.
If you’ve received your ERC refund or are applying for it, don’t hesitate to reach out to one of our team members today. We can guide amending your federal, state, and personal returns, ensuring that you fully leverage the benefits of the ERC program while remaining in compliance with IRS and state regulations. Maximize the potential savings and financial relief available to your business by taking these crucial next steps after receiving your ERC refund.
Solutions by Mike Miller, CPA 