How Do You Fit the Pieces of the ERTC Together?

October 11, 2023
Dayes Law Firm

If you run your own business, you may have heard about the Employee Retention Tax Credit, or ERTC. ERTC benefits can be a lifesaver for business owners who struggled during the COVID-19 pandemic. Still, many don’t bother trying to claim the credit because they’re confused about how the process works.

Putting together the ERTC puzzle can feel overwhelming. Here are the perks of the ERTC and how business owners can qualify.

What Are the Tax Credit Benefits of the ERTC?

How would you like to claim a credit worth up to $21,000 per employee for your business? That money could help you hire workers, buy new equipment, pay bills, and keep your business afloat if you’ve been struggling.

If you qualify, you could claim:

  • Up to $5,000 per employee for 2020
  • Up to $7,000 per employee per quarter for 2021 (up to $21,000 for the year)

How Do You Qualify?

The tricky part is knowing whether you qualify for ERTC benefits. According to IRS guidelines, you’ll need to meet one (or both) of the following requirements to claim the credit:

  • You had a major drop in gross receipts compared to the same calendar quarter of the prior year
  • Your business had to close at least partially because of a government order

Let’s discuss these requirements in a little more detail. For the first business qualification, you must have experienced a drop of at least 80% for 2020. The IRS relaxed the requirement in 2021, and for that year, you only need a drop of at least 20%, which makes it easier to claim the credit if you didn’t qualify previously.

The government shutdown requirement is a bit harder to meet. You must have had to close your business temporarily, either fully or partially, in response to an order limiting group meetings, travel, or commerce.

For example, you might qualify if you own a restaurant and were not allowed to serve guests in the dining room. Likewise, if one of your vendors impacted your business by closing down, that could qualify as a partial shutdown.

How To Claim the Credit

If you think you might qualify for the ERTC, you must gather all supporting evidence and send it to the IRS. Submit it with IRS Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.

You must submit the form by mail because the IRS currently doesn’t handle online processing for Form 941-X. Once you’ve done that, expect to wait anywhere from six to eight weeks for your credit. However, you might need to wait a little longer if the IRS is experiencing delays.

Watch Out for ERTC Scams

If you come across a company promising to help you claim these tax incentives without looking over your financials first, be wary. Dozens of ERTC mills have sprung up in response to the demand for this valuable credit.

It can seem tempting to use an ERTC mill because these companies promise to do all the hard work for you. However, in return for the service, an ERTC mill will take a cut of your benefits. Plus, if a mill claims the credit for you when you’re not eligible, you might have to pay all of it back.

On September 14, the IRS announced “an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program” as a result of increased fraud concerns. 

IRS Commissioner Danny Werfel noted in the announcement, “The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in.” He urged that when it comes to claiming the ERTC, “businesses should seek out a trusted tax professional who actually understands the complex ERC rules.”

Working with a tax professional on your Employee Retention Tax Credit application means having the knowledge and resources of a team that completely understands the ERTC and tax code on your side. That might make you less likely to turn in an incorrect claim.

Contact Dayes Law Firm If You Need Help Claiming the ERTC

Want to learn more about ERTC benefits or find out whether you qualify to claim the credit? Reach out to Dayes Law Firm at (866) 567-4510. We’ll tell you whether you’re eligible for the ERTC and help you claim the credit the right way.