The ERC tax credit can provide significant financial relief to businesses who paid qualified wages to employees during the COVID-19 pandemic. Eligible businesses receive up to $21,000 per employee for the time period between March 12, 2020 and January 1, 2021.
It is important to calculate the ERC tax credit accurately in order to avoid any complications with your application getting approved by the IRS. Inaccurate information on your application could result in an audit from the IRS. For this reason, it is best to complete your application with the help of an ERC tax consultant.
To qualify for the ERC, business owners must not exceed 100 employees whose wages were paid during qualified quarters of 2020 and 2021. 2020 and 2021 have different qualifying factors for the ERC tax credit. For example, only startup recovery businesses qualify for ERC during the third and fourth quarters of 2021. When completing your application, make sure you are only submitting to quarters in which you fully qualify for the tax credit.
Business owners eligible for the ERC tax credit qualify under one of the following reasons:
They paid qualifying wages to employees between March 12, 2020 and January 1, 2021
They saw an over 50% decline in gross receipts between March 12, 2020 and January 1, 2021
Qualifying wages under the ERTC consist of wages paid or incurred between March 12, 2020 and January 1, 2021 to employees during the COVID-19 pandemic lockdowns and restrictions. These qualified wages can include salary, cash, and even healthcare expenses paid to employees. The qualified wages used for ERC cannot be the same qualified wages used for a PPP loan.
The ERC tax credit accounts for 50% of qualified wages in 2020 and 70% for 2021. The maximum credit for each quarter per employee in 2021 is $10,000. To calculate your ERC credit, use our ERC calculator and speak to one of our consultants regarding your application.
How to File 941-x for ERC
Form 941-X adjusts an employer’s quarterly federal tax return or allows you to claim a refund on your tax return. The following sections of Form 941-X specifically deal with the ERC tax credit:
Line 18a: Used to correct quarters after March 31, 2020 and before January 1, 2022 for the non-refundable portion of the ERC tax credit
Line 26a: Used to correct quarters after March 31, 2020 and before January 1, 2022 for the refundable portion of the ERC tax credit
Line 30: Used to correct quarters after March 31, 2020 and before January 1, 2022 for reporting qualified wages for the ERC tax credit
Line 31a: Used to correct quarters after March 31, 2020 and before January 1, 2022 for reporting qualified health plan expenses for the ERC tax credit
Recovery startup businesses will also need to complete line 31b stating whether they are eligible solely because they are a recovery startup business.
To make sure you complete all necessary parts of your application with accurate information, consult with Five Star ERC Experts’ team of experienced tax attorneys and certified tax agents.
How to Report ERC on Tax Return
The ERC tax credit is reported on your tax return using Form 941. To claim the ERTC for qualified quarters in 2020 and 2021, you will need to amend your tax return. Five Star ERC Experts consists of tax attorneys and certified tax agents to help you amend your tax return for the ERC tax credit.
If you received your ERC tax credit, you may be wondering how that would impact how you file your taxes for the current year. Because it is a tax credit that could also be a refund, the ERC is not taxable income. However, it is subject to cost disallowance laws.
ERC Form 7200
Form 7200, Advance Payment of Employer Credits Due to COVID-19, was a form that employers used to request an advance payment of the ERC. This form was used to request an advance payment of the anticipated credit that the employer expects to claim on its quarterly employment tax return, Form 941. The advance payment was meant to provide the employer with immediate access to funds to cover payroll expenses.
Form 7200 is no longer available as of January 31, 2022.
Do I Need a Tax Consultant to Complete My ERC Application?
ERC specialists are typically tax consultants with an understanding of how to amend your tax return for the IRS. The ERC application is sent to a team of ERC specialists at the IRS, so having someone with experience handling taxes for the IRS can make your application process much easier to navigate. Five Star ERC Experts has been in business since 2008 with tax attorneys and certified tax agents on staff. They are experts with extensive knowledge of state-by-state restrictions and can guide you through the process in a seamless and timely fashion.
It is best to complete your application long before the deadline to ensure that you receive your ERC tax return as soon as possible. The process could take up to nine months before you receive your tax return.