As a result of the COVID-19 pandemic and the subsequent economic downturn, businesses of all sizes and in all industries became directly or indirectly affected by regulations and shutdowns caused by the pandemic. As a result, it became clear that in order for U.S. companies to remain open, they required significant financial assistance.
The Employee Retention Credit (ERC), which is part of the Coronavirus Aid, Relief, and Economic Security Act, is a form of assistance that was allowed by the federal government in the amount of billions of dollars expressly for businesses (CARES Act). An employment tax credit that is refundable for eligible employers and is based on qualified wages and health plan expenses, the ERC allowed employers to use the funds to continue to pay existing employees, keep the business running, and keep staff employed during the economic fallout caused by the Coronavirus.
During the epidemic, employers have been making significant efforts in order to maintain their operations. They just do not have the capacity to learn and comply with the many local, state, and federal rules, as well as uncover the ins and outs of the ERC in order to determine whether or not they are eligible for the business. There are millions of dollars in unclaimed credit that are available, and practically any company that was affected by the epidemic is qualified to submit a claim for it. It is imperative that commercial businesses make the most of this opportunity before the funds become exhausted or the claims window of three years expires.
5 Good Reasons to Send in Your Application
- The Majority of Businesses Are Eligible: The following are the COVID-19 related criteria that a business must meet in order to qualify for the ERC: a) the business was fully or partially shut down or had to reduce hours due to an order from the government; b) employers saw a significant decrease in gross receipts in 2020 or 2021 when compared to 2019 gross receipts; and c) the business is a recovery startup that will be operational in the third and fourth quarters of 2021.
- You might be eligible to receive up to $26,000 for each employee At the time of the ERC’s initial implementation in 2020 as part of the CARES Act, the maximum credit that could be awarded under the ERC was $5,000 for each employee. The maximum credit is now $21,000 according to the Consolidated Appropriations Act (CCA), 2021, which included provisions for the program’s extension and growth. Businesses were required to make a decision on which program—the ERC or the Paycheck Protection Program (PPP)—they would participate in as a result of the CARES Act. Many people went with PPP rather than ERC since it was simpler to sign up for a loan supported by the Small Business Administration (SBA) than it was to learn the specifics of being eligible for ERC. However, following legislation broadened the standards for qualifying for employers such that they may now get both, making this an opportunity that businesses just cannot pass up.
- It Is Retroactive: Despite the fact that the Infrastructure Investment and Jobs Act (IIJA) of 2021 moved up the expiration date of the ERC, effectively repealing the program for the fourth quarter of 2021, companies are still permitted to submit their payroll tax filings for the covered periods. This is due to the fact that the legislation is retroactive. At the time that employers submitted their payroll taxes in 2020, they were eligible to deduct the money straight from their quarterly payroll taxes. Those individuals who did not file in 2020 and who are claiming the ERC for the first time on their payroll taxes in 2021 will be eligible to get a refund for the quarterly filing periods that they did submit.
- It’s a Cash Refund: The ERC is a federal credit that is taken on a business’ quarterly payroll taxes, not the taxes of the business itself, and it is based on how many full-time employees (30+ hours) the company had during the eligibility period. This credit is taken as a percentage of the business’ total quarterly payroll tax liability. The amount of the credit that can be claimed is determined by the amount of qualifying wages that are paid for each employee in each quarter. In the year 2020, the refundable tax credit was equal to fifty percent of the eligible wages, up to a maximum of five thousand dollars. 70 percent of qualifying salaries up to $21,000 in 2021 were eligible for this benefit. A cheque for the amount of the credit that was claimed is issued by the IRS as a refund.
- It’s Easier Than You Think: If a business can demonstrate that it satisfies the ERC’s qualifying conditions, then the credit can be claimed on payroll tax forms that have already been submitted. ERC specialists who are employed in accounting departments or by tax preparers are able to make a speedy determination as to whether or not a company is eligible for the credit and offer any necessary advise. These experts have the ability to prepare modified payroll tax returns for the qualifying quarters and submit them in to the Internal Revenue Service if the standards are satisfied.
In addition to the Emerging Risk Credit, the federal government has established a number of other credit programs with the goals of assisting businesses in weathering the long-term consequences of the epidemic, fostering innovation, and promoting the employment of American workers. Companies should talk with their tax preparers about these additional credits available to them including the Research and Development (R&D) tax credit, which is available to companies developing new or improved business components, and the PPP forgivable loan program, which was also established during the CARES Act and is implemented and backed by the Small Business Administration.
Jay Woods is the creator of Omega Accounting Solutions and now serves as the firm’s President. He is in charge of the business growth and strategic planning of the company. With over 20 years of experience in financial management, business leadership, and corporate strategy, Woods’ primary focus is on developing long-term strategic partnerships with clients and assisting small business owners in gaining access to fully-functioning accounting departments. Woods is also a certified public accountant. Get in touch with us right now if you’re interested in learning more about the ERC qualification requirements and obtaining a free audit from Omega Accounting Solutions.
Reasons Why Nonprofit Professionals Should Apply for ERC
Here Are Five Good Reasons Why Nonprofit Organizations Should Apply for the ETC Right Away
As the COVID-19 pandemic gained momentum, thousands of businesses were forced to close due to the pandemic, which had a significant impact on their finances. In response, the United States government passed legislation that authorized billions of dollars in economic relief to be provided to employers. The Employee Retention Credit (ERC) was one of the government tax incentives that was created to encourage qualifying employers to continue paying their employees and keep their businesses functioning during the economic devastation caused by the coronavirus.
What many people don’t realize is that this financial assistance was designed for any employers who have employees, including tax-exempt nonprofit organizations like private hospitals, museums, churches, private schools, universities, and credit unions. This is something that many people are unaware of.
Unfortunately, a significant number of nonprofit organizations that are eligible for these potentially beneficial payroll tax credits did not claim them as a reduction in their payroll taxes for the years 2020 and 2021. The encouraging news is that you can still get your hands on those monies. Here are five compelling arguments why your nonprofit organization should submit an application right away for the Employee Retention Credit.
1. The vast majority of charities will be eligible.
To be eligible for the ERC, a nonprofit organization must fulfill one of the following requirements:
- As a result of an order from the government, the organization had to either entirely or temporarily cease operations, or it was forced to decrease the number of hours it was open.
- The business owner reported a large drop in gross receipts for the years 2020 and 2021 when compared to the gross receipts reported for 2019.
- The company is a recovery startup that is projected to begin operations in the third and fourth quarters of 2021.
2. The Employee of Your Nonprofit Organization May Be Eligible to Receive up to $26,000
The maximum credit that may be claimed under the ERC was initially set at $5,000 for per employee when it was initially enacted in 2020 as a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The maximum credit was raised by an additional $21,000 as a result of the renewal and expansion that took place under the Coronavirus Response and Consolidated Appropriations Act during the previous year.
3. It Applies to the Past
The Infrastructure Investment and Jobs Act from the previous year moved up the expiration date of the ERC, effectively repealing the program for the fourth quarter of 2021; however, nonprofit organizations are still permitted to submit their payroll tax filings for the covered periods. This is the case despite the fact that the ERC’s expiration date was moved up. At the time that employers submitted their payroll taxes in 2020, they were eligible to deduct the money straight from their quarterly payroll taxes. Refunds for quarterly filed periods will be provided to individuals who either did not file in 2020 or who are claiming the ERC for the first time on their payroll taxes in 2021 — or retrospectively for 2020.
4. You will get a Cash Refund
The ERC is a federal credit that can be deducted from a company’s quarterly payroll taxes, not the firm’s own taxes, and is determined by the number of full-time employees the company has during the qualifying period (30 hours or more per week). The amount of the credit that can be claimed is determined by the amount of qualifying wages that are paid for each employee in each quarter. In the year 2020, the refundable tax credit was equal to fifty percent of the eligible wages, up to a maximum of five thousand dollars. 70 percent of qualifying salaries up to $21,000 in 2021 were eligible for this benefit. A cheque for the amount of the credit that was claimed is issued by the IRS as a refund.
5. It Is Much Easier Than You Believe It Will Be
If a nonprofit organization is eligible for the ERC and wishes to claim the credit, it must first file revised payroll tax returns using Form 941-X (pdf) for the relevant quarters and then send those returns to the Internal Revenue Service (IRS). This option to file backwards is valid for three years from the original filing date, or until the program runs out of funding, whichever comes first.
ERC specialists who are employed by accounting companies, divisions of accounting firms, and tax preparers are able to swiftly determine whether a nonprofit organization is eligible for the credit and give any necessary advise.
In addition to the ERC, the federal government has established a number of other tax credits with the goals of assisting nonprofit businesses in weathering the long-term consequences of the epidemic and encouraging both innovation and the employment of American employees. These incentives include: Employers should talk extra tax credits with their tax preparers, such as the Research and Development (R&D) tax credit, which is offered to nonprofit companies that are creating new or better business components.