It is a partially refundable tax credit that businesses can claim for qualified wages paid to employees during the COVID-19 pandemic.The ERC is a refundable tax credit, which means that businesses can get a refund for the amount of the credit that exceeds their tax liability. However, the ERC is also a non-refundable tax credit, which means that businesses cannot get a refund for the credit if it reduces their tax liability to zero.

Under the CARES Act of 2020, businesses may be eligible for the ERC if they had employees and operated a trade or business, which includes tax-exempt organizations. However, with limited exceptions, it does not apply to governments or their agencies and instrumentalities. A small eligible employer for 2020 is an employer that had 100 or fewer full-time (30 hours per week or more) employees on average per month in 2019, and for 2021 had 500 or fewer full-time employees on average per month in 2019.

Your business may be eligible for the ERC if its operations were fully or partially suspended by governmental COVID-19 orders limiting commerce, travel or group meetings or experienced a significant decline in gross receipts during 2020 or the first three quarters of 2021. If your business started to operate on or after February 15, 2020, it may qualify to claim the ERC for the third or fourth quarters of 2021 as a recovery startup business.

According to Section 4980H of the Internal Revenue Code, an FTE is someone who works an average of at least 30 hours per week or 130 hours per month.

Eligible employers can still claim the Employee Retention Credit (ERC) by filing a Form 941X for relevant quarters, even though the ERC calendar period ended December 31, 2021. For all four quarters in 2020, the deadline to apply is April 15, 2024; for all quarters in 2021, the deadline is April 15, 2025.

Eligible businesses can retroactively claim the ERC for 2020 and 2021 by filing IRS Form 941-X to amend their filed returns (Form 941) for the quarters during which your business was an eligible employer. It is important to ensure that your Forms 941 for 2020 and 2021 were filed, received, and processed by the IRS prior to filing Form 941X. Unlike Forms 941, Forms 941X cannot be filed electronically. Before you claim the credit, make sure you’re equipped with the following information:

- Payroll data

- Personal information (including Employer Identification Number)

- Prior years’ tax returns

- Copies of Form 941 filed for each quarter you plan to claim the ERC

We understand that filing for an employee retention credit can be a daunting task. By filing with us, though, you can rest easy knowing that your information will be handled with care and strict compliance. We pride ourselves in helping small businesses reach their full potential. Let us help you navigate the qualification process transparently and efficiently.

We’re happy to work with your CPA. A decline in revenue may not be required. Many of our customers even had increases in sales, but still experienced disruptions or were negatively impacted. Let us help.

Our Partner, Thomas McNulty CPA LLC conducts the ERC analysis. They have over 30 years of experience in Princeton, NJ, they are the official tax preparers signing your return.