Employee Retention Credit: Over but Not Done

The federal government’s Employee Retention Credit (ERC) proved to be a lifeline for many businesses and their employees affected by the COVID pandemic. The eligibility rules were complex and changed over time, as noted in an extensive IRS chart. Not all business owners may have been able to figure out whether they were eligible; however, the IRS is giving them a break: Even though the program has ended, employers are still able to file for tax relief retroactively.

According to the IRS, most taxpayers became ineligible to claim the ERC for wages paid after Sept. 30, 2021. For ERC purposes, a Recovery Startup Business  (one that began operations on or after February 15, 2020), may still claim the ERC for wages paid after June 30, 2021, and before Jan. 1, 2022) provided various conditions are met. However, companies have three years to claim the benefits they’re entitled to.

The key is Instructions for Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. It’s a complicated form, but it clearly notes, “Generally, you may correct over-reported taxes on a previously filed Form 941 if you file Form 941-X within 3 years of the date Form 941 was originally filed or two years from the date you paid the tax reported on Form 941, whichever is later.”

The bottom line? If you have been uncertain whether you were eligible for the ERC during its open period, you have some breathing room to see if you are retroactively entitled. This credit can be quite lucrative, but determining eligibility can be complex. Contact R&A for guidance to make sure you get every dollar you’re entitled to. And please read the following article in this newsletter for more information about how to protect your business from inaccurate and costly ERC filings.