Financial rules and regulations laid down by the IRS are difficult to navigate, especially if you’re not familiar with the ins and outs as a business. Over the past few years, businesses have also met with increasing financial struggles due to the Covid-19 pandemic, which imposed restrictions and lockdowns preventing businesses from making a profit.
There’s a solution though. The Coronavirus Aid, Relief and Economic Security (CARES) Act was put in place in March 2020 to try to relieve some of the financial struggles and help businesses to get back on their feet.
Employee Retention Credit (ERC) is a credit to be claimed from the IRS by small to medium businesses as a reimbursement for some of the wages lost. During the pandemic, certain businesses had to close or reduce their opening hours due to government restrictions. However, the employees in those businesses still needed to be paid for their time in order to avoid a cost-of-living crisis. This left the business making less profit but still with the same outgoings.
ERC allows these businesses to claim a portion of the wages that they’ve paid back with no penalties imposed.
Small to medium businesses can claim ERC if they have suffered a substantial loss of earnings due to the pandemic. In order to qualify, you would need to prove that the business has lost at least 20% of its expected earnings over the years 2020 and 2021. This can be done using previous financial statements and forecasting predictions for growth which was predicted over those 2 years.
Businesses that launched during the pandemic may even be eligible by displaying financial forecasts based on intelligent data.
However, they will also need to provide evidence that their workforce has retained the same pre-pandemic levels throughout, to show that the employer was willing to pay wages for employees that were not as productive as a result of the pandemic.
You would be advised to get a specialist service to help you claim your funding. Businesses such as ERC Benefits can take on all the headaches of the complex ERC filing and their expertise will ensure you get the maximum funding.
To apply, businesses must file Form 941-X, Schedule R and adjust their quarterly tax return or claim a refund on their federal tax return. The amount payable will be calculated and returned to you by check within 6-10 months, depending on how you file. For more support or information, you should contact a tax professional.
The ERC is based on each employee’s wage. The scheme allowed businesses to claim up to 50% of each employee’s wage annually within the first year, then increased the value to up to 70% of each employee’s wage quarterly in 2021 due to increased restrictions. This was capped at $26,000 per employee per annum or $10,000 per employee per quarter, so companies stand to earn a huge amount back if they employed multiple people throughout that period. Businesses on average received around $11,000 per employee based on the wages paid out.
The ERC ended at the end of 2021 when the restrictions were fully lifted. However, businesses are still able to claim their credit right up until the end of 2024 depending on the area they live and their filing status.
In order to file late, businesses would need to prove that they were at a financial detriment during those years due to a covid-19 related mandate imposed on their sector.
For businesses that struggled throughout the pandemic, ERC can provide a much-needed lifeline to get the business back on track and continue the growth trajectory. For more information or support, reach out to ERC Benefits at 561 680 4677 or visit ercbenefit.com today.
