The government provided the Employee Retention Tax Credit as a tax incentive to businesses in the United States. These businesses had suffered major losses during the pandemic, be it through partial or full shutdown of their operations. Eligible businesses can now opt for an Employee Retention Tax Credit refund.
What Is the Employee Retention Tax Credit Refund?
The Employee Retention Tax Credit refund aims to encourage businesses to keep workers employed through the pandemic’s impact. Businesses have maintained a consistent employment rate despite the major losses faced during the pandemic, simply due to the ERTC’s numerous benefits.
The ERTC helps eligible businesses claim a tax credit for a certain portion of their employee’s wages. In the case of a refundable tax credit, the credit amount is more than the employer’s taxes. Thus, the employer can receive the excess as a refund.
Take the example of an eligible business qualified for a tax credit worth $12,000. However, the business only owes $5000 in taxes. In this case, the employer can receive a refund of $7000 in cash from the government.
This can help businesses survive the pandemic’s negative impact and use the extra help to revive their businesses. However, the eligibility criteria and certain restrictions can vary according to the business type or the state legislation.
Since navigating the IRS complexities can be hard, consulting a professional who can take you through the most difficult parts of the employee retention tax credit refund is advisable.
The Three-Step Process to Claim Your Employee Retention Tax Credit Refund
The ERTC refund can be claimed through three simple steps. Although the specific processes and requirements might vary, the general process is the same. The best way to keep updated with the recent guidelines is to consult a tax professional who can keep you informed.
Here are the three steps you can follow to get an ERTC refund;
Step 1: Understand Eligibility Requirements
Ask yourself whether your business holds ERTC eligibility. The eligibility criteria include a couple of important hurdles to overcome;
- Your business must have experienced a partial or total shutdown of business operations. The government should direct this and result from the pandemic’s effects.
- Sometimes, the business must report a percentage loss in gross receipts (50% in 2020 and 20% in 2021). Since the IRS often relaxes the legislation, businesses should consider applying if rejected in 2020.
- Qualified wages are the only ones that will receive the relief. These must have been paid to employees not working during the pandemic (this has also recently been relaxed, and employees working in 2021 are also being considered).
- The ERTC also provides unique benefits to some startups that failed to maintain operations due to the pandemic.
Go through the guidelines carefully and figure out whether there are any loopholes that can lead to ineligibility. Speak to a professional who can guide you on the nitty-gritty details.
Step 2: Start Calculating Your Tax Credit
Once you have determined eligibility, you need to start calculating your tax credit, so you can fill out the updated Form 941 as soon as possible. Keep the following points in mind;
- The ERC credit calculation allows you to receive a 70% credit applicable to up to $10,000 of qualified wages for a single employee (maximum of $28,000 per year).
- The IRC has discontinued Form 7200. Form 941-X is the updated form you must fill out if you want to apply for an ERC tax credit.
Calculating tax credits can be difficult as it changes depending on the legislation at the time, along with qualified employees, limitations, and restrictions. It is best to consult a tax professional who can guide you through the difficult parts.
Step 3: Filling Out Your Forms
You must complete the form and consult a professional to help you with the smaller details. Filling out all parts of the form is important. Information as small as the EIN can lead to ineligibility if incorrect.
To claim the ERTC refund, you must fill out the form to claim the credit and allow the IRS to determine eligibility. Once you receive approval, you can request for employee retention tax credit refund through the relevant form.
Since all the forms can vary, and there can be several different types, conduct your homework and try to know all there is to know about the ERTC guidelines. Keep all of your documents handy in case you need them at any point.
It is important to understand the process thoroughly and the importance the IRS places on forms. The information you add to your forms determines ERTC refunds. Inaccurate information can take your further away from the refund.
If you have not applied for ERTC in 2020, have been rejected, or have reported the wrong information, you can add your details in the form of amendments. However, you must ensure you are adding updated information to avoid delays.
Hire Professionals for Your ERTC Refund
Are you considering applying for an employee retention tax credit refund? Have you been intimidated by the forms one too many times? Perhaps it is time to kick back, relax, and leave the tax credit to the professionals.
Regardless of whether you have been deemed ineligible in the past, we can help you. Often, incorrect information can keep deserving businesses away from the ERTC. We can help you get the ERTC and your refund!
Contact us today to experience the best customer service. We answer all your questions and take you through the worst process from day one. If forms are causing you discomfort, we can make it easy for you. Take the leap today and place your trust in our services.