Should Your Business File an Employer Retention Credit?
During the Pandemic, everyone suffered financial losses. As a business owner, you probably worried if you could stay afloat and continue paying your employees. You no doubt had to make cuts and sacrifices and we’re probably happy to make it to the other side.
Yet, you may be unaware of a stimulus package that was passed for private business owners just like you. The package was for businesses the government told to suspend operations in part or in full due to COVID-19, or businesses that experienced a supply chain disruption or a significant decline ≥ 50% in the same quarter in 2019 and 2020.
In fact, 50% of eligible businesses have not claimed their employer retention credit, including private businesses and colleges, universities, hospitals, and 501(c)(3) organizations!
This important credit could help you get your business or organization back on its feet if you qualify.
What is the ERC?
The Employee Retention Credit (ERC) is a refundable credit which was part of the CARES Act congress passed on March 27, 2020.
Businesses can claim an ERC on certain types of wages they paid to employees, including health insurance costs, from March 13 to Dec. 31, 2020.
The ERC can be claimed for as much as 70% of employee wages since the Consolidated Appropriations Act was passed in 2021. An ERC can be filed against a single employee’s wages on up to $10,000 each quarter.
The American Rescue Plan Act in 2021 extended the credit through 2021.
How Do I Know If My Business Qualifies?
So, how can you know if your business qualifies for the ERC?
First, your business must have had operations suspended or supply interrupted by government restrictions or orders during the Pandemic, or have experienced a 10% or more decrease in an employee’s hours compared to 2019.
During the pandemic, businesses were required to limit hours of operation, whether employees could come to work or not, and to permit time off for illness and recovery, and quarantine. These restrictions impacted work that could not be done remotely, and many businesses suffered.
If your business financials prove that the restrictions resulted in a financial loss, you should apply for the credit. If the restrictions did not impact your business directly or your financials were the same or better than 2019, you most likely won’t be eligible for the credit.
How to Claim It
Businesses have until 2023-24 to claim the ERC if they qualify, as you must amend your tax return within 3 years from filing the original. You will retroactively have to claim it for wages paid to employees from 2020-2021 during the pandemic.
To get the credit, you will need to file an amended tax return for those years. You will need to file the 941-X form for each applicable quarter.
Beware of Firms Filing Fraudulent Claims
When filing, you should be wary of predatory firms operating as “ERC sweatshop refund mills.” These firms may convince you that your business qualifies for an ERC even if it does not.
If you file a fraudulent ERC claim through one of these firms, you and your business will have to pay penalties and may face civil and criminal charges.
To avoid this scenario, only work with a licensed CPA you trust to fill out and submit your 941-X forms.
How Flex HR Can Support You
As a human resources company, Flex HR can help you better understand this credit as it relates to your employees.
As Jessica Stafford, Payroll Tax Manager for Flex HR shares, “Working with a firm like FlexHR ensures that your payroll records are accurate and complete. We can also help you navigate the dangerous field of ERC sweatshops and ensure that the firm you work with is legitimate and has your best interest in mind. We’re happy to work directly with your CPA to provide the records they will need to file on your behalf.”
For more information on ERC, contact us today!
***Please note that we are not a CPA firm! You can use this information we’ve provided above to talk with your CPA.
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