Almost the last chance to claim the 2021 employee retention credit

Do not be late to claim the Employee Retention Credit (ERC) for 2021. The time is limited, so quickly take advantage of this substantial tax credit. The ERC was initiated as part of pandemic relief efforts and gives up to $21,000 per employee to qualified businesses. The deadline to amend your payroll tax returns is April 15, 2025.

So what should you do?

What is the ERC?

The Employee Retention Credit is a refundable tax credit designed to help businesses that keep employees on their payroll during challenging economic periods caused by the COVID-19 pandemic. For the 2021 tax year, eligible businesses can claim upto $7,000 per employee per quarter for the first three quarters of the year, totaling $21,000 per employee.

What businesses qualify?

The following criteria must be fulfilled to qualify for the 2021 ERC
Significant decline in gross receipt or full or partial suspension of operations

Your business can qualify in either way.

Your business experienced a decline in gross receipts of at least 20 per cent for a qualifying 2021 quarter compared to the same quarter in 2019.
Your business suffered from a federal, state or local government-ordered full or partial suspension of operations during one or more qualifying quarters.

Size of the business

Businesses with 500 or fewer full-time employees can claim the ERC for wages paid to all employees for the year 2021. Larger employers can only claim the credit for wages paid to employees who were not working.

New Business started after February 15, 2020

Businesses that started after February 15, 2020, could qualify for credit up to $100,000.

Why should you amend your payroll tax returns now?

The ERC is claimed via Form 941, the Employer’s Quarterly Federal Tax Return. If your business did not claim credit during 2021, you can amend those returns by filing Form 941-X for the applicable quarters.

The statute of limitations for amending returns is generally three years from the original filing deadline. Since the way payroll returns work, this means you must file your 2021 amended payroll return on or before April 15, 2025.

What’s at stake?

The ERC can provide a significant financial boost to your business. For instance, if your business qualifies and employs 10 eligible workers, you could receive upto $210,000 in refundable tax credits for 2021. These funds can be used to cover operating expenses, address financial challenges or invest in growth.

Common misconceptions

Many businesses have overlooked ERC due to confusion about eligibility or because they believe they are not eligible. Some of the common misconceptions include:

PPP loan recipients cannot claim the ERC: This is not true because businesses that received the Paycheck Protection Program (PPP) loan can also claim the ERC, though wages used for PPP loan forgiveness cannot be double-counted for ERC.
It is too late to apply: Though it is time, it is not too late. Act now.
The process is too complicated: With proper guidance, amending payroll tax returns to claim the ERC is manageable. Many tax professionals specialize in this area and can help ensure accuracy.

Next steps

If you think your business might qualify for the ERC, you should do this:

Ignore the 2020 ERC; it is too late for that, and it is only $5,000 per employee. For 2021, the money is big.
Take action now.
Whether you use an in-house tax advisor or outsource, vet them cautiously.

BergerCPAFirst, with over 30+ years of experience, offers comprehensive tax preparation services for individuals and businesses nationwide. Our commitment is to provide personalized attention while ensuring compliance and maximising tax benefits. If you have any questions or would like to schedule a consultation, please call (201) 587-9200 or send us an inquiry.