The COVID-19 pandemic and the resulting economic upheaval sparked a series of financial relief packages, each with various complicated updates and provisions. In particular, the Employee Retention Credit (ERC) underwent several legislative changes that exacerbated initial confusion and left many qualifying businesses uncertain about their eligibility.
Even now, nine months after the last ERC update, many business owners are left wondering, “Do I qualify for the Employee Retention Credit?” and, perhaps most importantly, “Can I Still Claim the ERC?”
At National Tax Group, our tax experts specialize in making sense of complex benefits. We’ve broken down everything you need to know about amending the ERC for your business in 2021 and 2020.
What is the Employee Retention Credit?
Originally passed in March 2020 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Employee Retention Credit (ERC) was designed to encourage employers to keep employees on payroll throughout the pandemic, even if they were not actively working.
Eligible employers can claim this refundable tax credit against qualified wages and health plan expenses paid to their employees. The ERC is available to employers that operated during the pandemic and experienced either a significant decline in gross receipts or a full or partial suspension of business operations due to government orders.
The original version of the ERC underwent several modifications over time until it was discontinued by the Infrastructure Investment and Jobs Act (IIJA) in Nov. 2021.
Changes to the Employee Retention Credit
- The original version of the ERC applied to qualified wages paid from March 13, 2020, to Dec. 31, 2020. Employers could claim up to $5000 per employee during that time period.
- From Dec. 27, 2020 through July 1, 2021, the Consolidated Appropriations Act (CAA) of 2021 allowed employers to claim up to $7000 per employee.
- The Infrastructure Investment and Jobs Act (IIJA), effective starting Nov. 15, 2021, partially walked back the ARPA and retroactively ended the ERC on Sept. 30, 2021.
Common Misconceptions About Employee Retention Credit Eligibility
With all the changes to the ERC over its short lifespan, many eligible business owners missed out on their savings due to confusion and misunderstandings. If any of these misconceptions have held you back from claiming your tax credit, contact National Tax Group. Our specialty tax experts can help you earn the savings you missed and prevent any other opportunities from slipping through the cracks.
PPP Loan Recipients are Not Eligible for the ERC
The original version of the ERC did not allow Paycheck Protection Program (PPP) loan recipients to claim the ERC. However, the CAA changed that policy in Dec. 2020, stating that “an employer that is eligible for the employee retention credit (ERC) can claim the ERC even if the employer has received a Small Business Interruption Loan under the Paycheck Protection Program (PPP).”
Qualifying Businesses Must Experience Revenue Declines
According to the CARES Act, businesses must either experience either a significant decline in gross receipts or a full or partial suspension of business operations due to government orders. This aspect of the ERC has remained steady since the tax credit was introduced — businesses do not have to experience both negative effects of the pandemic to qualify.
Businesses Must Have Had a Complete Shutdown of Operations
Like the previous point, some of this misconception stems from the belief that both pandemic effects are required in order to qualify for the ERC. However, businesses that experienced a significant decline in gross receipts do not also have to have had a shutdown of business operations.
Additionally, the shutdown aspect does not have to be complete for businesses to qualify. Businesses that experienced a partial suspension of operations due to government orders, such as restaurants that still served takeout or hospitals prohibited from performing elective procedures, still qualify for the ERC.
Can You Still Claim the Employee Retention Credit?
If confusion over the Employee Retention Credit requirements has held you back from claiming the credit in the past, you’re in luck: employers can retroactively claim the ERC for qualified wages paid between March 13, 2020, and Sept. 30, 2021. Employers who mistakenly claimed too little of their qualified wages can also file an amended quarterly employment tax return (Form 941-X) for the appropriate quarter(s). Businesses can file for the ERC retroactively for up to three years.
However, your business may not see the returns for several months. Tax returns are facing a several-month delay due to the IRS backlog, and amended returns in particular are slow to arrive. For best results, file your taxes electronically, and double-check for accuracy before you submit them.
To prevent missed opportunities for lucrative tax benefits and to ensure you get the most from your tax return, consult with National Tax Group’s specialty tax experts before you file. We find the overlooked tax benefits that best fit your business and make sure your qualifications and documentation are in order to save you the most money. With over 20 years of combined experience, our team’s in-depth knowledge of tax regulations allows us to find the best opportunities for you. Reach out to National Tax Group today for a free benefits assessment.