The pandemic has been a difficult time for many businesses, but the Employee Retention Credit (ERC) has been an invaluable lifesaver for many small businesses. Companies can use some techniques to optimize both ERC and debt forgiveness within the framework of the Check Protection Program (PPP). Eligible businesses can file a request for retroactive reimbursement from the ERTC on qualifying wages previously paid during the last calendar quarters by filing Form 941-X, Employer Adjusted Quarterly Federal Tax Return, or request for reimbursement. Unlike many other tax credits available to small business owners, the ERC does not offset income taxes.
Receiving a check from the IRS can take a while, but the ERC can be a valuable tax credit for businesses that qualify. Taxpayers may be required to include an ERC in their return, which increases their taxable income, before receiving a payment due to delays by the IRS in reviewing the amended forms. The ARPA, for example, allows small employers who received a loan from the Check Protection Program (PPP) to also apply for the ERTC. For the ERC, a full-time employee is one who works at least 30 hours a week or 130 hours in a month.
To understand what makes an employer eligible and what is considered a qualifying salary, let's look at an example of how to calculate the ERC. Large employers can only claim it for employee salaries and health insurance premiums paid when employees weren't working due to a pandemic related shutdown. Businesses must complete Form 941-X, Request for Reimbursement, for the relevant quarters in which eligible salaries were received to apply for credit from previous quarters. Before filing a claim with the ERC, employers must fully understand their background and best practices in order to prepare for a possible IRS ERC audit.
Disaster loan counselors can help your business with the complex and confusing employee retention credit (ERC) and employee retention tax credit (ERTC) program.