3 reasons you may not have received ERC tax credits in 2020
COVID-19 negatively impacted many people and businesses. Luckily, the government passed legislation to help the economy recover, including the Employee Retention Credit (ERC). This payroll tax credit puts money back into eligible small to medium-sized businesses that qualify. In fact, Innovation Refunds has helped 11,000+ clients with ERC origination.
So is your business eligible? Below, we’ll discuss the 3 reasons you may be eligible for an ERC tax credit.
ERC eligibility 2020 requirements
Who qualifies for the ERC? Likely tens of thousands of businesses. The IRS has laid out several guidelines that they have modified and adjusted [D&G3] with new legislation — but we have your back with the most updated information available.
ERC eligibility requirements for 2020:
● 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.
You may also qualify if your business had canceled travel plans, meetings were impacted, or your suppliers had issues in their supply chain due to the pandemic.
Additionally, the ERC 2021 qualifying year has different guidelines for small to medium-sized businesses looking to apply. It’s important to note that for 2021, eligible businesses can only claim the refund for the first three quarters of the year.
Why you may not have received the ERC in 2020
You didn’t meet the 2020 requirements.
You didn’t qualify for the ERC 2020, which is why your business didn’t receive its refund. However, the ERC 2021 requirements are slightly different. Even if you weren’t eligible for ERC tax credits for 2020, you may be eligible for the first three quarters of 2021.
ERC eligibility requirements for 2021:
● 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.
Like the 2020 qualifications, your business may also qualify if government orders impacted your operations.
Even if eligible, you didn’t claim the ERC tax credits for your business
You have to apply, be an eligible business, and fill out the necessary forms in order to receive the payroll tax refund for your business. If you didn’t start the ERC refund process back in 2020, you may have thought that it’s now too late to apply, or that the potential refund amount wouldn’t be worth the hassle.
However, eligible businesses can receive up to $5,000 per employee for all of 2020 and up to $7,000 per employee for each of the first three quarters of 2021. Businesses could receive a grand total of up to $26,000 in ERC tax credits per employee. [D&G4]
Keep in mind that for some businesses, the deadline for applying for the ERC for 2020 is 2024. The sooner you start the application process, the sooner your payroll tax refund can be processed.
You overstated a wage reduction
Some businesses may not receive a refund, even if they submitted the paperwork. For example, the IRS will not allow businesses to use the same payroll costs for the ERC that were also reported for a PPP loan. Having incorrect information on submitted documents can result in delays, as the IRS will not process the payroll tax refund until all information is corrected and accurate.
Note that, if a business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business will need to file an amended income tax return to correct any overstated wage deduction.[D&G5]
Form 941-X
If you have already submitted the payroll tax forms for both 2020 and 2021, you will need to use Form 941-X to amend your calculations for the ERC refund.
Innovation Refunds can help
Applying for the ERC tax credits can be a challenging process. With the changing rules, complex regulations, and paperwork, eligible businesses may need some extra help. An ERC originator can assist you in seeing if your business may be eligible for a payroll tax refund.
An ERC originator can:
● Stay on top of changing rules
● Walk you through the regulations for both qualifying years
● Assist with paperwork accuracy
● Estimate your potential refund
● Help you stay on track to avoid missing deadlines
Do you have everything you need to get the ball rolling? Check out the required list of documents to help you prepare.
