Small-business owners can still amend previous tax returns to secure the federal refundable Employee Retention Credit (ERC)—with care.

The ERC was meant to encourage employers to keep their employees on their payroll during the pandemic and was also available for startups. In 2020, the maximum ERC per employee was $5,000; in 2021, it was $21,000. Generally, to qualify a company had to experience a significant decline in gross receipts, shut down on government orders or have suffered supply chain disruptions.

Retroactively claiming the ERC involves amending a previously submitted return using IRS Form 941X. Employers file quarterly Form 941s one month after the end of each calendar quarter; each is considered filed by April 15 of the following calendar year, so the last of the 941s for quarters of those years was deemed filed last April.

Employers have three years from these filing dates to amend previous filings for ERC refund claims, or tax day in April of 2024 or 2025.

The ERC also evolved during the pandemic.

“Generally, taxpayers ... must choose to claim either a deduction or a credit,” said Nathan Smith, director for CBIZ MHM’s National Tax Office in Clearwater, Fla. “When an employer files an income tax return and originally claims a deduction for employee wages and later changes their mind to claim the ERC instead, the employer must go back and amend its income tax return.”

Employers support eligibility, Smith said, based on a percentage decline in gross receipts from a quarter in 2019 to the relevant quarter in 2020 or 2021. Employers can also support eligibility if they were subject to government shutdown orders.

In the months since its creation, the ERC has often confused business-owning taxpayers. The American Rescue Plan extended the ERC to the end of 2021, for example, but the Infrastructure bill passed in November 2021 ended the ERC retroactively to Sept. 30, 2021, except for recovery startup businesses.

“Initially, you couldn’t claim the ERC if you also got a PPP (Paycheck Protection Loan) that was later forgiven,” added Larry Pon, a CPA in Redwood City, Calif. “The Consolidated Appropriations Act allows PPP borrowers to also claim the ERC [but] the wages cannot be used for both the PPP and ERC calculations.”

Nevertheless, the ERC remains a lure for businesses—and not always a good one. Supposed consultancies have cropped up offering what Smith called “wildly aggressive or outright meritless positions” for clients to claim the credit.

First « 1 2 » Next