How Long Should Businesses Keep ERTC Tax Information?

January 4, 2024
Dayes Law Firm

Has your business claimed the ERTC yet? If so, you’re already aware of how invaluable this refundable tax credit can be. If you haven’t yet claimed the credit, you can still do so retroactively even though the ERTC program has ended.

You may wonder how long you should retain your ERTC tax information after claiming the credit. Dayes Law Firm answers questions about ERTC tax guidelines below.

How Long to Keep ERTC Tax Records

According to ERTC IRS compliance guidelines, businesses should keep all tax records associated with the ERTC for at least four years after filing the fourth quarter for the year. It’s important to keep these records in case the IRS has questions or chooses to audit your business. If you don’t have proof that you qualify for the credit, you might have to pay the money back.

Keep the following ERTC tax information:

  • Amounts and dates of wages, pensions, and annuity payments
  • Amounts of tips reported by employees
  • Names, addresses, occupations, and Social Security numbers of employees
  • Dates of employment for each employee
  • The fair market value of in-kind wages paid
  • Periods for which employees were paid while absent due to illness and the amounts you paid them
  • Fringe benefits and expense reimbursements provided to employees
  • Documentation to substantiate credits claimed
  • Copies of filed returns and confirmation numbers
  • Dates and amounts of tax deposits made
  • Employee copies of W-2 and W-2C forms returned to you as undeliverable

What Documentation Do Businesses Need to Claim the ERTC?

Documentation needed to claim the ERTC depends on which qualification requirement you meet. You qualify if you meet at least one of these requirements:

  • You had a major drop in gross receipts. The IRS defines a “major drop” as at least a 50% decline compared to the same calendar quarter of the previous year (for 2020) or at least a 20% drop (for 2021).
  • Your business had to fully or partially shut down because of a government order limiting group meetings, commerce, or travel.

If you wish to claim the credit using the first requirement, you’ll need to supply evidence of the drop in gross receipts. Your records should include:

  • Cash and credit sales
  • Receipt books
  • Services completed
  • Real estate transactions
  • Invoices
  • Employment tax returns

If you can claim the credit due to a partial or total shutdown, you must provide the following documentation:

  • A description of modifications you had to make to your business because of the shutdown
  • A timeline for those modifications
  • A narrative that demonstrates the impact those modifications had on your business
  • A copy of the government order that required you to make the modifications

How to Claim the Employee Retention Tax Credit

The ERTC provides many tax benefits for employers. If you haven’t claimed your credit yet, gather the above proof to serve as evidence of your eligibility and submit it with Form 941-X: Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.

On this form, choose the quarter and year (you can claim the ERTC for multiple quarters if you’re eligible, but you’ll need a separate form for each quarter). You’ll also need to provide the amount of qualified wages paid to employees. Qualified wages include hourly pay, salaries, and health insurance costs paid for employees.

Learn More About the Tax Implications of the ERTC

It’s a good idea to keep your ERTC tax information for at least four years so you’re protected in case of an IRS audit. To learn more about ERTC tax credit reporting requirements and find out whether you qualify for the credit, call Dayes Law Firm at (800) 503-2000 to request a free consultation.