The Employee Retention Credit (ERC) program was part of the initial COVID-19 relief bill of March 2020 to offer financial relief to businesses impacted by the pandemic. The program has been a lifesaver for American companies across virtually all industries. But far too many business owners are making mistakes when claiming their credit.
Here are the biggest mistakes we want you to avoid so you too can benefit from the ERC:
- Not understanding the claim periods and filing deadlines. You can claim the ERC for any period of 2020 by April 15, 2024, and for any period of 2021 by April 15, 2025. Any Form 941, Form 943, Form 944, Form 945, or Form 1042 filed for any period ending with or within a calendar year before April 15th of the succeeding year is deemed filed on April 15th of the succeeding year, even if the return is required to be filed prior to that date. If the return is filed after April 15th of the succeeding calendar year, the assessment period is three years from the date the return is filed. See IRC 6501(b)(2) and Treas. Reg. 301.6501(b)–1(b).
- Not understanding eligibility requirements. There are a lot of components to the ERC program, and the eligibility rules are complex.
To be eligible for the credit, an employer must have the following:
- been fully or partially closed due to a governmental order
- OR experienced a significant drop in revenue. This is defined differently for 2020 and 2021.
- Not considering state unemployment tax implications. The Employee Retention Credit (ERC) may impact state unemployment taxes in various ways, depending on the specific state regulations and laws. Some states may consider the ERC a taxable wage and require employers to pay state unemployment tax on the amount of the credit. Other states may exclude the ERC from taxable wages or provide specific guidance on how to properly handle the credit for state unemployment tax purposes. It is recommended to consult with a tax professional familiar with state unemployment tax laws and regulations for specific guidance on how the ERC may impact state unemployment taxes for your business.
- Not correctly calculating the amount of the credit. It’s essential to understand how to correctly calculate the credit that your business is eligible for. For 2020, the credit is 50% of qualified wages paid to employees between March 12, 2020, and December 31, 2020, up to $10,000. For 2021, the tax credit is up to $7,000 per employee per quarter for the 1st through 3rd quarters.
The ERC is a great program that’s offered much-needed financial relief to businesses, but there are a lot of components to it. Miami CFO has helped over 150 companies obtain over $60 million in ERC credits. We can complete your application in just a few days with our streamlined process. Use this link to schedule a meeting: https://calendly.com/miami-cfo/