How to Apply for ERC (Employee Retention Credit)
The Employee Retention Credit (ERC) presents a significant financial benefit for many businesses impacted by COVID-19. Developed by the U.S. Government, this refundable tax credit incentivizes employers to retain employees, thereby mitigating unemployment spikes. Here is a step-by-step guide on how to apply for the ERC.
Step 1: Determine Eligibility
Firstly, you need to determine whether your business qualifies for the ERC. Broadly, businesses that experienced either a considerable decrease in gross receipts or experienced a full/partial suspension of operations due to a government order related to COVID-19 may be eligible. Validation criteria and degree vary depending upon the claim year, check the IRS guide for updated details.
Step 2: Calculate the Credit
Once you’ve established eligibility, calculate the credit available. The credit varies by year. In 2021, for instance, it was 70% of the qualified wages (up to $10,000 per employee per quarter). Ensure you're using the right calculation parameters.
Step 3: Reporting Qualified Wages
Report your total qualified wages and related health plan costs for each quarter on your employment tax return (usually Form 941 or an equivalent form).
Step 4: Claim your Credit
Depending on your circumstances, there are several ways to claim your ERC:
Reduce Employment Tax Deposits: You can withhold the amount of your credit from your federal employment tax deposits.
Request Advance Payment: If your employment tax deposits aren't sufficient to cover the credit, you may be able to request an advance payment from the IRS using Form 7200.
Claim on Your Quarterly Return: If you've under-calculated your ERC, you can correct this on your quarterly return.
Remember, the process can be complex, and navigating it often requires detailed financial information and an understanding of tax laws. Due to the potential for errors and the risk of missing valuable credits, consider consulting with a tax professional or legal counsel.