The IRS has set a three-year window from the date you filed your first return or two years from the date you made payments to file an updated federal hiring tax return for those who wish to apply for the Employee Retention Credit (ERC) retroactively. To determine which documents you must submit to obtain the credit and how to complete the correct tax form for your company, it is best to consult an accountant, tax professional, or specialist in ERC. It is important to note that unlike a Paycheck Protection Program (PPP) loan, you do not have to repay the ERC money. However, the salary used for the PPP loan application (and the PPP waiver) cannot be the same salary used to apply for the ERC.
If payroll taxes were delayed before receiving the ERC in the fourth quarter, any underpaid tax amounts must be determined and prepared for resolution. The ERC provides qualified employers with a significant amount of money from the United States government. If an eligible employer completely reduces the required federal payroll tax deposits that would otherwise be due to wages paid in the same calendar quarter in anticipation of receiving the credits, and has not paid qualifying wages that exceed this amount, they should not file Form 7200. These forms modify payroll tax return documents already filed at the end of the corresponding quarter.
The ERC can only be applied for on a payroll tax return, not on an income tax return. The purpose of the ERC is to encourage employers to keep their employees on payroll during the pandemic. However, due to a lack of staff at the IRS, it could take up to 16 months to receive money from the ERC. Companies that had to suspend some or all of their operations due to government restrictions related to COVID-19 or companies that lost 50% of their gross revenues in the same quarter of the previous year are eligible for the ERC.
Even though the program has ended, companies still have up to three years with retroactive effect to apply for it. Yes, you can still apply for Employee Retention Credit if you received a loan from the Check Protection Program during the COVID-19 crisis. This will ensure that any prepayment of credits received by a common law employer is properly reconciled with the employment tax return filed by a third payer for the calendar quarter in which advance payment of credits is received.