How to Apply for Employee Retention Credit
April 6, 2023
The COVID-19 pandemic disrupted business all around the world. In March of 2020, state and local government restrictions as well as a sluggish economy resulted in sharp losses in revenue for many businesses. The initial federal financial response was the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)—a comprehensive economic relief package that included both the Paycheck Protection Program (PPP) and the lesser-known Employee Retention Credit (ERC).
At Sunrise Business Solutions, we specialize in the Employee Retention Credit. Our team is focused on helping businesses obtain the maximum tax credit that they are entitled to under federal law. Your company may be eligible for six quarters worth of ERC—that could mean hundreds of thousands or even millions of dollars. In this article, you will find a comprehensive overview of the most important things to know about applying for the Employee Retention Credit (ERC).
What is the Employee Retention Tax Credit?
The Employee Retention Credit (ERC) is one of the most important but least understood aspects of our federal government’s fiscal response to the COVID-19 pandemic and the resulting economic disruptions. As noted by the United States Department of Treasury, the ERC was designed to work in conjunction with the PPP to help encourage employees to keep workers on their payroll and to reward the businesses and organizations that actually do so.
The ERC is a refundable tax credit. In effect, that means that it is essentially a check mailed by the IRS to businesses that apply and get approved. The ERC applies to six quarters in total, spanning the spring of 2020 through the fall of 2021. For every quarter that your company qualifies for the ERC, it can claim a tax credit against wages paid to employees. The maximum benefit for most businesses is up to $26,000 per employee.
How to Claim the Employee Retention Credit
To claim the Employee Retention Credit (ERC), an eligible employer must submit the proper documentation to the IRS. To be clear, if a business never takes proactive measures to claim its ERC, it will simply not get it. The IRS does not apply the Employee Retention Tax Credit automatically. It is up to business owners and business managers to ensure that they pursue their ERC funds that they are entitled to.
A business can only obtain the ERC for quarters in which it was subject to COVID-19 government restrictions that fully or partially suspended operations or quarters that suffered a substantial decline in revenue. An example of partial suspension if your business had to do cleaning and sanitizing protocols backed by a government order or mandate in which we have all of them. Of course, most businesses in the United States saw COVID-19 related disruptions. Do not assume that your company cannot qualify for ERC benefits. You should speak to an ERC specialist at Sunrise Business Solutions. We know how you qualify. Get in touch with us now.
What to Know About Reporting Qualified Wages and Filing the Proper Forms
Businesses and organizations seeking the Employee Retention Credit need to include the proper information and documentation as part of their federal employment tax returns. Most notably, employers seeking the ERC need to report their total qualified wages for each employee. These qualified wages include employer paid health insurance and tips and bonuses. This will help determine how much can be received as a tax credit. For 2020, an employer can claim up to $5,000 per employee as a maximum benefit. For 2021, an employer can claim up to $21,000 per employee as a maximum benefit. The actual value of each company’s benefits depends on wages.
Consistent with federal tax law, employers must use IRS Form 941 to report the “income taxes, Social Security tax, or Medicare tax withheld from employee's paychecks.” IRS Form 941 is the key form that will be used to determine how much an employer can claim as an Employee Retention Tax Credit. And Now everyone is required to file it retroactively so IRS Form 941x is required to be calculated, substantiated, and submitted properly. How do you file for the Employee Retention Credit in 2022? For all companies now, this involves filing an amended return 941x. You have the right to look back at your payroll and file an ERC return for 2020 or 2021. There is now a two-year window left to claim the ERC but don’t wait as it is first come basis so don’t wait, just like the PPP ran out..
An Overview of Who Qualifies for the Employee Retention Tax Credit
The COVID-19 pandemic and the global economic disruptions affected an enormous number of businesses. Few companies were left wholly unscathed from the financial and economic fallout from the pandemic and public health restrictions. The ERC is designed to provide benefits to businesses and organizations that were affected. Many companies across the full range of industries can qualify. More specifically, the Employee Retention Credit program requires an employer to establish:
- That it was subject to a local, state, or federal government order that fully or partially suspended its operations; or
- That it experienced a significant loss in revenue on a quarterly basis due to the COVID-19 pandemic.
To determine whether a loss of revenue occurred, the IRS requires businesses and organizations to use 2019 as a baseline. For businesses formed after 2019, an ERC tax credit may still be available. Unique regulations apply. Our experienced ERC specialists can help you navigate this question.
The Sunrise Business Solutions team are experts in government orders and are able to qualify their clients for all 6 quarters without a revenue loss.
How Does the Employee Retention Tax Credit Work
The ERC is a tax credit. In effect, that means that the government is essentially giving qualifying employers a “credit” against taxes that are owed. Due to its refundable nature, in practice, the Employee Retention Credit functions much like a grant.
If your business qualifies for the ERC, it will get a check from the IRS. You can get a check for each of the six quarters that you qualify for benefits. Further, unlike the PPP, there are no requirements on how ERC money must be spent.
You could use it to support payroll, invest it in growing your business, or do anything else with the funds. Indeed, a business owner could simply keep the ERC for themselves as compensation for the financial losses sustained when they kept employees on payroll despite a COVID-19 related disruption. This is a refund and the ownership’s profit back to them.
You Can NOW Apply for Both the ERC and the PPP
It is important to emphasize that the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC) are not “either/or” options. Your business does not have to choose to apply for one or the other. They are separate economic programs aimed at the goal of encouraging and rewarding employee retention. Your business can still apply for the ERC if it received PPP funds. In the same vein, your business can apply for the ERC even if you never sent in a PPP application.
Is it Too Late to Apply for the ERC in 2022?
No. You can still apply for the Employee Retention Credit in 2022. The ERC exists for six quarters in total—the last three quarters of 2020 and the first three quarters of 2021. However, the law contains a three-year payroll lookback option for businesses. In effect, this means that companies have three years to apply for the ERC tax credit for any given quarter. Even if your business already filed its taxes for 2020 or 2021, you can still apply for the ERC credit in 2022. The IRS allows companies to file an amended 941x return to seek their ERC funds. If you have any specific questions or concerns about applying for the ERC in 2022 for either 2020 tax year or the 2021 tax year, the employee retention tax specialists at Sunrise Business Solutions can help.
Why Choose Sunrise Business Solutions for Help With the Employee Retention Credit
The Employee Retention Credit offers generous financial support to many businesses and organizations that keep on workers despite facing real challenges. At the same time, the application process can be confusing. Many qualified businesses have not yet applied for their benefits. At Sunrise Business Solutions, we have the knowledge and experience that you can trust. With our Employee Retention Credit specialists, applying for the tax credit is made as easy and smooth as possible. We offer a simple and efficient four step process:
- Step #1: With Sunrise Business Solutions, you can get a risk-free assessment of your ERC eligibility in 60 seconds and can guarantee your ERC qualification. Our Employee Retention Tax Credit specialist will review your company’s key documents—941 returns, monthly payroll reports, your PPP details, and that’s it. We know how you qualify and that’s Why We Can Guarantee It.
- Step #2: Based on the data provided, our ERC experts will use our proprietary system to strategically calculate the maximum ERC benefit that you can receive. We will review all six quarters. Remember, you can still apply for both 2020 and 2021.
- Step #3: We take care of the application itself. Do not be worried about the paperwork. Our team will prepare and file your ERC application—which typically involves completing and submitting an amended Form 941.
- Step #4: Once your application is submitted, the IRS will review and process your ERC tax credit claim. When approved, the federal government will mail you/your company a check for each quarter for which you are eligible. Our Clients qualify for all 6 quarters. All of our clients receive a full 100-200 page report of all the government orders and all their calculations, unlike others that only provide a 2 page summary.
Get Help From Our ERC Specialists Today
At Sunrise Business Solutions, we have the specialized experience and professional expertise that you can rely on. The Employee Retention Credit is the exclusive focus of our team. If you have any specific questions about how to apply for the ERC, we are more than ready to help. Give us a call now at 1-888-210-8870 or connect with us online at SUNRISE@SunriseBusinessSolutions.com to set up a strictly confidential initial consultation.