It's not too late to get financial relief for your small business that was negatively affected by the COVID-19 pandemic.
ARTICLE KEY POINTS:
- The Employee Retention Credit (ERC) provides financial relief to small businesses that kept employees on payroll during the COVID-19 pandemic. Eligible businesses can potentially claim up to $26,000 per employee for the years 2020 and 2021.
- To claim the ERC, it's important to be aware of the key eligibility periods for 2020 (March 13 - December 31) and 2021 (January 1 - December 31, with an additional eligibility period for Recovery Startup Businesses). These periods determine when your business can claim the credit based on a reduction in gross receipts.
- Businesses have until April 15, 2024, to claim the ERC for 2020 and until April 15, 2025, to claim the ERC for 2021. Even if you've already filed taxes for these years, you can retroactively amend your return to include the credit.
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What is the Employee Retention Credit?
The Employee Retention Credit (ERC) is a tax credit that the government provided as part of the CARES Act to help businesses who kept their employees on payroll during challenging times. Many small business owners don't realize that they're still eligible to claim the credit, as requirements have broadened throughout time.
Luckily, it's not too late to claim the ERC for the years 2020 and 2021, and you could potentially get up to $26,000 per employee.
(Review ERC Eligibility Requirements)
The two key dates to keep in mind? Businesses have until April 15th, 2024 to claim the ERC for 2020, and until April 15th, 2025 to claim it for 2021. Even if you've already filed taxes for these years, you can change your return retroactively to get the credit.
Understanding the key milestones and timeframes for the Employee Retention Credit is crucial for businesses planning to claim it.
Timeline and Milestones for Claiming the Employee Retention Credit
To fully take advantage of the ERC, it's essential to understand its associated timelines and milestones:
1. ERC Eligibility Periods
To begin, let's look at the ERC eligibility periods. The objective of the Employee Retention Credit is to help businesses that experience a reduction in gross receipts as a result of the pandemic. That being said, it's available to be claimed only for specific periods.
2020 Eligibility Periods:
- March 13, 2020 - June 30, 2020
- July 1, 2020 - September 30, 2020
- October 1, 2020 - December 31, 2020
2021 Eligibility Periods:
- Jan 1, 2021 - March 31, 202
- April 1, 2021 - June 30, 2021
- July 1, 2021 - September 30, 2021
- October 1, 2021 - December 31, 2020 *Note, only businesses considered Recovery Startup Businesses are eligible to claim ERC during this time period. Those are businesses that began operating after February 15, 2020 and that have gross receipts of less than $1 million.
2. Quarterly Filing and Claiming Deadlines
Next, let's discuss the quarterly filing and claiming deadlines. The ERC is claimed quarterly on Form 941, th4e Employer's Quarterly Federal Tax Return. Typically, these forms must be filed by the last day of the month following the quarter's end. For instance, Q1 claims should be submitted by April 30th, Q2 by July 31st, and so on.
See the table below for guidance:
|Business Quarter||Form 941 Due Date|
|January 1 - March 31 (Q1)||April 30|
|April 1 - June 30 (Q2)||July 31|
|July 1 - September 30 (Q3)||October 31|
|October 1 - December 31 (Q4)||January 31|
3. Retroactive Claiming for Previous Periods
For businesses that didn't claim the ERC in past eligible quarters, there's an opportunity to do so by amending Form 941 for the respective quarters. This allows access to benefits from prior years in which your business was affected. To file retroactively, you must file Form 941-X.
4. Record-Keeping and Documentation
Proper record-keeping is vital to support your ERC claim. Be prepared to maintain and provide documentation that demonstrates a reduction in gross receipts or the impact of a government order, as well as evidence of qualified wages paid to employees.
Given the statute of limitations for the IRS is generally three years after a return was filed, it's important to have all your ERC documents readily available in case of future audits.
5. Future Updates and Extensions
As the economic climate evolves, so too may the provisions and deadlines related to the ERC. Stay abreast of any legislative changes that could extend or modify the benefits of the ERC.
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Understanding the key milestones and timeframes for the Employee Retention Credit is crucial for businesses planning to claim it. By staying updated on legislative changes, planning strategically, and maintaining comprehensive documentation, businesses can fully leverage the potential benefits offered by the ERC. This is not just about tax planning; it's about building a resilient and prosperous business for the future.