How do I begin an ERC application?
Many small to medium-sized businesses have already recovered hundreds of thousands of dollars thanks to the Employee Retention Credit (ERC). For most eligible businesses, the ERC benefits will begin to expire in 2024. So there’s no better time to start your ERC application process to receive the refund your small business deserves.
Not sure where to start? Here’s everything you need to know about the application process.
Meet the requirements
The IRS set specific guidelines to ensure that certain qualifying small to medium size businesses that were negatively impacted by COVID-19 could benefit by recovering payroll tax refunds. This means that many businesses qualify for the ERC because they meet the following criteria:
2020 ERC eligibility requirements
● You had less than 100 employees on your payroll in 2019.
● You kept employees on your payroll.
● Your business suffered during the pandemic:
● Your revenue decreased by 50% or more for any 2020 quarter when compared to the same quarter of 2019.
OR
● Your business was forced to shut down or partially suspend operations due to a government order for any quarter of 2020.
2021 ERC eligibility requirements
● You had less than 500 employees on your payroll in 2019.
● You kept employees on your payroll.
● Your business suffered during the pandemic:
● Your revenue decreased by 20% or more during any of the first three quarters of 2021 when compared to the same quarter of 2019.
OR
● Your business was forced to shut down or partially suspend operations due to a government order during the first three quarters of 2021.
For both years, you may also qualify if your business had canceled travel plans, routine meetings were impacted, or your suppliers had issues in their supply chain due to the pandemic.
Refund amounts per quarter of 2020 and 2021
According to the IRS, “The credit equals 50 percent of the qualified wages (including qualified health plan expenses) that an Eligible Employer pays in a calendar quarter.” There is a cap of $5,000 per employee for the total year of 2020 and $7,000 for the first three quarters of 2021 per employee. This is a total possible refund of up to $26,000 per employee.
Gather the necessary documents
If you think your business may be eligible, you should make sure you have the necessary documents. In order for the IRS to process your paperwork, it’s important that all information you provide is accurate — squeaky-clean paperwork equals a better chance at ERC refund bliss.
IRS Form 941 and Form 941-X
Since applicable time periods have passed, you’ve probably already filed your Employer’s Quarterly Federal Tax Return documents with the IRS for 2020 and 2021. Form 941-X can be used to amend your original Form 941 to account for the eligible quarters for your ERC refund.
Monthly Payroll Ledger
Your payroll ledger is necessary for your ERC refund to prove to the IRS that you kept employees on the payroll.
Monthly group healthcare statement
The group healthcare statement can help you determine if any of your costs associated with providing health insurance for your employees can be refunded.
PPP1 & PPP2 Loan Forgiveness Applications
If you filed for the Paycheck Protection Program (PPP) for the first and/or second rounds, you’ll need this information to make sure you aren’t using the same deductions for the ERC. Keep in mind that if you filed an income tax return deducting qualified wages before you filed an employment tax return claiming the credit, you should file an amended income tax return to correct any overstated wage deduction.
Government order to shut down or suspend operations
If a government shutdown forced you to close or partially suspend your operations, providing the order as proof can help you qualify for the ERC.
Continue the ERC application process
Once you have your documents on hand, you’ll need to make sure all of your T’s are crossed. Any missing documentation could result in delays with the IRS processing your refund. Form 941-X will need to be properly completed and mailed to the correct Department of the Treasury Internal Revenue Service office.
ERC processing wait times and other considerations
When the IRS approves the ERC documentation, average wait times are six to nine months from the date you filed. The IRS has announced some processing delays, but you can contact the IRS to confirm your status.
Let Innovation Refunds help
Innovation Refunds assists with filing so that eligible businesses can claim the ERC. To start on your ERC journey you’ll need to make sure you have all of your ducks in a row. Download the Required Docs Checklist to understand the ERC application process.
