Does It Need To Be Paid Back?

SAN FRANCISCO, CA / ACCESSWIRE / July 13, 2023 / Understanding the Employee Retention Credit (ERC) tax guidelines can be complex. One big question that’s causing major confusion among many business owners is, “Do we have to pay back the ERC refund?” The answer affects eligible businesses everywhere, so it’s really important to know how it all works. The good news is that the actual ERC refund is not taxable and it does not have to be paid back. What is a potential taxable occurrence, however, is having to amend the business tax returns for 2020 or 2021, depending on what quarters a company receives ERC checks.

This is a tax credit question we continue to get from both existing clients and potential clients on a daily basis. The ERC credit tax refund amount is not taxable. The interest the IRS adds to an ERC refund is counted as new revenue when you receive it. The amount of your ERC refund check for each quarter has now reduced payroll and wages that you originally claimed as an expense in 2020 or 2021. Therefore, for each ERC check you receive, you must amend your past annual business tax returns from either 2020, 20201, or both, depending if you received an ERTC refund for those tax years,” said Marty Stewart, Chief Strategy Officer (CSO) with Disaster Loan Advisors (DLA). DLA has assisted over 700+ companies with their ERC / ERTC Tax Credit claims, by-the-book per current IRS tax credit rules and guidelines.

“Even though you are required to do this per IRS guidelines, depending on your tax liability from the past 2020 and 2021 tax years, we’ve seen that many times the business will still come out way ahead in a net gain from claiming the Employee Retention Credit, even if they end up having to pay taxes by having to amend their 2020 or 2021 returns. Still far worth it for many businesses that qualify,” continued Stewart.

Understanding the Tax Implications of the Employee Retention Credit – Quick Facts:

The Employee Retention Credit (ERC) is a refundable tax credit designed to encourage employers to keep their employees on payroll during the COVID-19 pandemic.

Unlike some of the other COVID-19 relief legislation, such as the Paycheck Protection Program (PPP), the ERC does not need to be paid back.

The ERC is a refundable tax credit, meaning that if the amount of the credit exceeds the amount of taxes owed by the employer, the excess will be refunded back to the employer.

The ERTC Tax Credit may have some tax implications depending on your past 2020 and 2021 tax years, however, many businesses still see a net positive gain overall.

Definition and Purpose of the Employee Retention Credit (ERC)

The Employee Retention Credit (ERC) is a refundable tax credit designed to encourage businesses to keep their employees on payroll during the COVID-19 pandemic.

The primary purpose of the ERC is to help eligible employers retain their workforce by covering a percentage of qualified wages paid to employees. Under this provision, businesses can claim 50% of wages up to $10,000 per employee in 2020, and 70% of wages up to $10,000 per employee, per quarter, in 2021.

For example, if an employer pays an employee $8,000 in qualified wages during a specific period in 2020, they can claim a tax credit worth $4,000 for that individual.

ERC Eligibility Requirements

Determining eligibility for the Employee Retention Tax Credit is crucial for small to medium-sized business owners. Outlined below are the key requirements that businesses must meet to qualify for this valuable tax incentive:

1. Experienced a significant decline in gross receipts: Businesses must have experienced a 50% reduction in gross receipts during any calendar quarter in 2020 compared to the same quarter in 2019 or at least a 20% reduction in any calendar quarter in 2021.

2. Faced full or partial suspension of operations: Employers may be eligible if they had full or partial suspension of their business due to government orders related to COVID-19.

3. Did not receive PPP loan forgiveness: Employers who received Paycheck Protection Program (PPP) loans and had them forgiven are generally ineligible for the ERC.

4. Meet employee count criteria: For an employer claiming the credit, there are different rules depending on whether they have more than 100 (in 2020) or more than 500 (in 2021) full-time employees.

5. Pay qualified wages: The wages paid to employees during eligible quarters must be considered wages qualified or “qualified wages” under the rules set forth by the IRS ERC credit program.

6. Do not exceed maximum credit limits: Employers can claim up to $5,000 per employee for qualified wages paid in 2020 and up to $7,000 per quarter for qualified wages paid in 2021 but must not exceed these limits.

7. Compliance with recovery startup businesses provisions: New employers that began operating after February 15, 2020, must meet specific criteria outlined by the American Rescue Plan Act (ARPA), such as having average annual gross receipts of no more than $1 million.

Including these eligibility requirements when claiming the Employee Retention Credit helps ensure your business complies with associated regulations while maximizing available tax relief benefits.

Calculation of The Credit

Calculating the Employee Retention Tax Credit (ERTC) can be broken down into simple steps, ensuring eligible employers accurately determine the amount they can claim. For 2020, businesses would take 50% of qualified wages paid to employees (up to $10,000 per employee) during eligible quarters, resulting in a maximum employee retention credit work amount of $5,000 per employee.

An Example to Illustrate This Process

If you own a small business with ten or fewer full time employees who each earned at least $10,000 in qualified wages during an eligible quarter in 2021, your company could claim an ERC tax credit credit up to ($7,000 x 10) = $70,000 for that specific quarter alone. There may be other deductions that have to be made that may lower this credit amount.

ERC Filing Requirements

To claim the Employee Retention Credit (ERC), eligible employers must have already filed Form 941, Employer’s Quarterly Federal Tax Return, for the calendar quarter in which they paid qualified wages. The IRS has provided additional guidance on how to claim the ERC on Form 941-X for each quarter that qualifies.

Employers must include the amount of ERC claimed and reduce their employment tax liability resulting from deposits by that same amount when submitting Form 941-X. If the credit exceeds the employer’s employment tax liability, they can receive a refund for the difference. It is important to keep accurate records and documentation of qualified wages paid and any advance payments received from the ERC.

The IRS also recommends consulting with an accountant or tax professional before claiming the credit to ensure all eligibility requirements are met, and proper filing procedures are followed. The Internal Revenue Service (IRS) wants business owners to stay protected. They have issued warnings about ERC credit frauds and scams so businesses stay aware. Furthermore, the IRS warns you never pay an ERC contingency fee or percentage based on your employee retention credit tax refund amount.

Retroactively Claiming the Employee Retention Tax Credit in 2023, 2024, and 2025 for Previous Quarters from 2020 and 2021 Tax Years

For ERTC 2023 updates and beyond, eligible employers and businesses have an ERTC deadline of April 15th, 2024, for retroactively filing ERC credit claims for eligible quarters from the 2020 tax year. April 15th, 2025, is the deadline to claim the tax credit for eligible quarters from the 2021 tax year.

About Disaster Loan Advisors™ Employee Retention Credit (ERC) Services

Disaster Loan Advisors™ (DLA) is a trusted team of financial tax professionals and Employee Retention Credit (ERC) consulting specialists dedicated to saving businesses from lost sales, lost customers and clients, lost revenue due to financial and economic harm caused by the COVID-19 / Coronavirus disaster, Delta and Omicron variants, and other recession and inflation downturns in the economy.

Having worked with over 1500+ business clients navigate the SBA Economic Injury Disaster Loan (EIDL), Paycheck Protection Program (PPP), and Restaurant Revitalization Fund (RRF) programs, DLA further refined its expertise in the ERC Tax Credit IRS program having assisted more than 700+ companies with their ERC Claims. Assisting ownership groups with multiple business entities, multiple location business owners, and other complex situations that require an expert tax and accounting strategist to be brought in to assess the situation and create the most strategic path forward.

DLA further specializes in another key pandemic-era SBA / IRS program where business owners are leaving a lot of relief fund money on the table. It is the often misunderstood and confusing Employee Retention Tax Credit (ERC) / Employee Retention Tax Credit (ERTC) program whereby company owners and partners can retroactively receive up to $26,000 to $33,000 back for each W-2 employee they had on payroll for the 2020 and 2021 tax filing years. Done correctly, these tax credits or cash refunds can be claimed retroactively for up to 3 years.

It’s encouraged that business owners obtain professional assistance in going through the complex 941-X amended filing process to help your company maximize the full value of the ERC Credit Program, while staying safe and compliant within the complex IRS rules and regulations for claiming the ERC Credits.

DLA doesn’t charge a percentage (%) of your ERC refund like many companies are charging. Instead, DLA works on a reasonable professional flat-fee basis. If you are looking for an ERC company that believes in providing professional ERC services and value for small business owners, in exchange for a fair, reasonable, and ethical fee for the amount of work required, Disaster Loan Advisors is a good fit for you.

Need Strategic Employee Retention Tax Credit Guidance?

CONTACT:
Disaster Loan Advisors
Elena Goldstein
Director of Media Relations
877-463-9777 ext. 3
[email protected]

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For an Employee Retention Tax Credit Deep-Dive Evaluation Analysis for Your Business, Visit:
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SOURCE: Disaster Loan Advisors™ (DLA)