Following the COVID-19 pandemic, the US government stepped up to provide economic relief to individuals and businesses nationwide. By passing the Coronavirus Aid, Relief and Economic Security Act (CARES) bill, companies and employees accessed relief funds, the largest rescue package in US national history. One of the components of the CARES bill is the Employee Retention Credit (ERC).
The ERC aims to offer financial relief to businesses that retained employees on the payroll when the COVID-19 pandemic impacted most operations. Employers can use ERC to stabilize their businesses post-pandemic, but this requires awareness of certain elements about the funds. Given the complications around ERC claims, it is advisable to work with a professional.
Read on for what to expect when working with a professional ERC specialist.
Do I need an ERC specialist for my claims?
While some internal accountants have successfully claimed ERC, this can be risky for your business as there is a likelihood for your finance department to miscalculate your credit amount. When the department over-claims, you will be subject to legal scrutiny and penalties; if they under-claim, you will leave the money you are entitled to.
An experienced ERC specialist will perform the following functions:
- Offer insights on your eligibility, application requirements, and documentation to ensure success with the program.
- Offer free audit defense, giving you peace of mind.
- Streamline the filing process, hence faster submission of the claims to the IRS.
The ERC Process
The IRS provides Form 941-X modified to allow small business owners to amend their taxes during the pandemic and claim the credits they qualify for. The claims process is lengthy, and understanding your eligibility and calculating ERC can be challenging. While many websites offer step-by-step guidance, they may not be accurate, so working with an ERC specialist is advisable.
The ERC application process comprises the following steps:
Determination Of Eligibility
The first step to applying for ERC is establishing if your business is eligible. Businesses of all sizes and industries, including nonprofits, startups, corporations, small businesses, and LLCs, can qualify for ERC if they meet the following criteria:
Closed Down Due To Government Order
You qualify for ERC if you closed your business fully or partially following government order. Business closures were common in 2020 as a government plan to manage COVID-19 statistics. While some businesses resumed operations after the lockdown, others shut down completely.
Experienced Loss In Receipts
An assessment of your gross receipts will determine if you are eligible. You are qualified if you lost at least 50% in 2020 compared to 2019 or 20% in 2021 compared to the same quarter in 2019.
Requirements For The Employer
You must have had at least one employee in the respective quarter to claim ERC as an employer. Small employers will qualify for the claim if they have 100 full-time employees or less in 2020 and 500 or fewer in 2021. Large employers, on the other hand, can claim ERC for wages they paid their employees while not offering services to their business.
Paycheck Protection Program (PPP) Loan Receipts
While initially, employers could not file a claim upon receipt of a PPP loan, this is possible now, only that you will not use the same wages in calculating your ERC paid by your PPP loan.
Generally, most businesses will qualify based on the above criteria, given the global impact of the pandemic, but the application requires focus on the quarters where you are eligible. An ERC specialist will help you determine your eligibility, which will take several days to weeks.
Filing Of The Application
If your business passes the eligibility criteria, the next step will be authorizing your ERC professional to prepare your application. Your provider will request documents, including tax returns for 2020 and 2021, payroll records for 2020 and 2021, records of full-time and part-time employees in 2019-2020, and your profit records for 2019, 2020, and 2021.
The application will also include completing an online questionnaire and submitting PPP information. Depending on the complexity of your application, this process will take a few days to weeks.
Application Processing By IRS
After receiving your application, the IRS will process it. The processing duration will vary with the complexity and size of the application, current backlog, fluctuations, and program updates.
Receipt Of The Funds
Upon approval, the IRS will issue your business with a refund check or apply the credit to any outstanding taxes. Refund checks will take weeks, while credit-to-tax payments will take months. The ERC will issue a tax refund through a paper check to your mail, and you are free to use your refund check as you please, including investing the money back into your company, paying your business debts, or taking it home as profit.
Speeding Up The ERC Process
As we stated earlier, the ERC application process can prolong depending on the backlog of applications, program changes, and the size and complexity of your application. You can speed up the process and receive your funds through the following:
- Ensure accurate and complete application – Inaccurate information and missing documents will delay the process. Therefore, before you start the application, gather all the documents and ensure accuracy.
- Stay updated with ERC policies and guidelines – ERC guidelines have continuously changed, and staying updated with the requirements in 2023 will ensure you meet the requirements to speed up the process.
- Seek expert guidance – Working with an ERC professional is advisable for a faster process. These specialists are knowledgeable about the program, including the updates, and will increase your chances of a smooth and fast filing experience.
Contact An ERC Expert For Accurate Claims
The ERC application process is lengthy with technical requirements. While your in-house accountant can hack the process, working with a professional ERC expert is advisable to understand the quarters you qualify for, calculate how much you will receive from the IRS, speed up the application process, and ensure smooth processing. Given their expertise and knowledge of the latest guidelines and regulations, partnering with an expert will give you peace of mind enabling your business to focus on its core operations.