The Employee Retention Tax Credit (ERC or ERTC) program has helped numerous businesses recover from the impact of COVID-19. While the program was originally supposed to continue through the end of 2021, it ended early with the introduction of the Infrastructure Investment and Jobs Act (IIJA).
With the ERC cut short, businesses expecting a tax refund for the fourth quarter of 2021 were left scrambling to adjust their plans. Our team at Dayes Law Firm explains why this program ended early and how to claim the ERC for 2020 retroactively and the first three quarters of 2021.
What Is the ERC?
The ERC is a tax credit program designed to help businesses that suffered during the COVID-19 pandemic. Many businesses faced hardships and shut down, others became precariously close to shutting down. To prevent this, Congress introduced the ERC through the CARES Act.
This tax credit encouraged employers to keep employees on their payroll by reimbursing them for a percentage of their employees’ wages and health insurance as a tax refund.
The 2020 ERC period ran between March 13, 2020, and December 31, 2020. If employers experienced a 50% loss in revenue or had to shut down regular operations, they could claim the ERC.
The 2021 ERC period was supposed to run through all four quarters. Businesses qualified for the ERC in 2021 if they experienced a 20% loss per quarter compared to the same quarter in 2019.
Employee Retention Tax Credit Cut Short
The American Rescue Plan of 2021 planned for the ERTC program to run through December 31 as it did in 2020. The Infrastructure Investment and Jobs Act, a $1.2 trillion effort to improve the country’s roads, bridges, and sea ports, motivated Congress to repurpose the funding originally planned for the ERTC.
With the ERC cut short, businesses may only claim tax refunds for qualified wages for the first three quarters of 2021. The IRS will not provide relief for the fourth quarter, which started on September 30, 2021.
What Should Businesses Do Next?
The ERC program ending prematurely put many businesses in a tricky situation. If you planned to claim that credit, you may have already reduced your tax deposits or included your ERC credit in their annual budget.
The good news is if you already reduced your business’s tax deposits, you will not be penalized as long as you deposited that amount by the due date for wages paid up to December 31, 2021. In this circumstance, you must have also accounted for the change in your tax liability due to the early termination of the ERC.
Start-up recovery businesses can still claim the ERC for the final quarter. To qualify as a start-up recovery business, you must have begun operations on or after February 15, 2020, have at least one employee, and have average gross receipts under $1 million.
Can Businesses Still Claim the ERC?
Yes, you can still retroactively claim the ERC even after its early termination. While you won’t collect tax refunds for the final quarter in 2021, you can still file for the ERC for 2020 and the first three quarters of 2021.
To claim the ERC retroactively, file IRS Form 941-X to amend your previously submitted tax return. You have up to three years after filing the original tax return to claim the ERC.
Retroactively Filing for the ERC? Contact an Experienced Tax Attorney
Even with the ERC cut short, it isn’t too late to file for the ERC. Our team of experienced tax attorneys at Dayes Law Firm can help you retroactively file for the ERC for your 2020 or 2021 qualified wages.
Dayes Law Firm has helped businesses file over $250 million in ERC funds. Call (800) 503-2000 to schedule your free consultation today.