The Employee Retention Credit (ERC) was designed to support economic recovery during and after the pandemic by offering lucrative payroll tax credits for qualified wages paid in 2020 and 2021. It has been a saving grace for many businesses. But business owners have been unclear about the program and its guidelines since its inception. One big question among many owners is, “Do we have to pay back the ERC refund?”
Refundable Tax Credit, Not Loan
The answer to the repayment question is a resounding NO. The ERC is not a loan and does not require repayment. It is a refundable tax credit, meaning eligible employers can receive up to $26,000 in cash refunds for every W2 employee without the burden of repayment.
Conditions for Eligibility
While the ERC offers significant benefits, it’s essential to understand the qualification requirements. To be eligible for the credit, employers must meet one of the following conditions:
- Significant Decline in Revenue: A business that experienced a significant decline in revenue, meaning a decrease in gross receipts of more than 50% when comparing any quarter in 2020 to the same quarter in 2019. Or a 20% decline for 2021 compared to the same quarter in 2019.
- Full or Partial Shutdown of Operations: Employers that faced a full or partial shutdown of operations due to a federal, state, or local government order are eligible.
Claiming the ERC
While the program ended in 2021, eligible businesses can still claim the credit for qualified wages paid between March 13, 2020, and December 31, 2021, by amending their previous tax returns or filing an adjusted return.
The application deadline for 2020 is April 15, 2024, and April 15, 2025, for 2021 tax returns.
The ERC is a valuable tool, but navigating the complexities of the tax guidelines can be challenging. Let the Miami CFO team help you determine eligibility and guide you through the process. Schedule a meeting with us today by clicking on this link: https://calendly.com/miami-cfo/.