Employee Retention Tax Credit Filing Deadline

Many businesses and organizations have faced unprecedented hardships and challenges as a result of the COVID-19 pandemic. Many employers have faced reduced revenues, increased expenses, and disrupted operations due to lockdowns, social distancing, and health and safety measures.

Employee Retention Credit is a refundable income tax credit available to eligible employers that helps them retain their employees while providing health benefits.

The ERC was first enacted by the CARES Act in 2020 and was later extended and modified by subsequent legislation in 2021 and 2023. This article will explain what the ERC is, how it works, and how to claim it for different time periods and eligibility criteria.

For a brief reading of what the Employee Retention Credit or ERC is, take a look at this video from the YouTube channel “ERC Specialists”. You can also continue below to read an in-depth explanation of ERC.

What is the Employee Retention Credit? Employee Retention Tax Credit Filing Deadline

Employee Retention Credit (ERC) is a refundable credit available to tax-exempt and for-profit organizations and businesses that have employees who were affected by COVID-19. The ERC, created in 2020 by the CARES Act, was then extended and modified through subsequent legislation in both 2021-2023. The ERC encourages employers to maintain their workers and to provide health benefits to them during the crisis.

Main Features and Benefits

The credit is equal to a percentage of qualified wages and health insurance costs paid to eligible employees, up to a certain limit per employee per quarter.
The credit limit and percentage are dependent on the period of time for which you claim the credit. For 2020, the percentage is 50%, and the limit is $5,000 per employee for the entire year. For 2021, it is 70%. The limit is $7,000 per quarter per employee. For 2023, the percentage will be 70% for the two first quarters and 40% for the two last quarters. The limit per employee per quarter is $10,000. Employee Retention Tax Credit Filing Deadline
The credit is fully refundable. If the amount of credit exceeds an employer’s liability for payroll tax, the excess will then be paid back to the employer.
Employers can claim this credit if they experienced a significant decrease in gross receipts due to an order from the government relating to COVID-19. Employers who are considered to be recovery startup businesses may also claim this credit, but only for 2023.
The credit can be claimed by filing an amended employment tax return (Form 941-X) or by reducing employment tax deposits in anticipation of the credit. The credit can be requested in advance by employers using Form 7200.

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Eligibility Criteria

In order to qualify for Employee Recruitment Credit (ERC), a company must meet the following criteria:

The employer’s company or organization has been suspended, either fully or partly, by an order of the government due to COVID-19 at a particular calendar quarter in 2020/2021
The employer’s gross receipts for a calendar quarter in 2020 or 2021 were less than 50% (for 2020) or 80% (for 2021) of its gross receipts for the same quarter in 2019

There is also a special rule that applies to recovery startups, which are businesses that started operations after February 15th 2020 with gross receipts no higher than $1,000,000 on average. These businesses qualify for ERC despite business suspensions or revenue decreases.

Business Suspension

A business or organization is considered fully or partially suspended by a government order if:

The order restricts the commerce, travel and group meetings that are prohibited by COVID-19
The order will affect the operation of the business or the organization
Order applies to any calendar year in 2020 or 21

Here are some examples of government orders that can result in a business being suspended:

Orders to stay at home that prevent non-essential companies from operating
Curfews are restrictions on the hours that certain businesses can operate
Limits to the number of clients or customers that a company can serve
Travel restrictions or bans that impact the ability of an organization to transport goods and services

To determine if a business was fully or partially suspended by a government order, an employer must consider:

The nature and scope of the order and how it affects the operations of the business
The duration and frequency of the order and how it coincides with the calendar quarters
The magnitude and impact of the order upon the revenue and expenses of a business

Revenue Decline

A significant decline in gross revenues is experienced by a business or organization if:

The gross receipts of any calendar quarter in 2020 are less than half the gross receipts of the same quarter in 2019.
The gross receipts for any calendar quarter in 2021 were less than 80% of its gross receipts for the same quarter in 2019

Gross receipts are the total amount that a business or organization has received or accrued from all sources, during its annual accounting period. Gross receipts can include:

Sales of goods & services
Interest, dividends, rents, royalties, and annuities
Contributions, gifts and grants Employee Retention Tax Credit Filing Deadline
Membership dues
Gross business income

To calculate and compare gross receipts for different quarters, an employer must use:

It should use the same method of accounting, either cash or accrual, that it used for its federal income tax returns for 2019.
The same calendar year quarters that it used to file its federal employment tax returns (Form 941) for 2019 and 2020/2021
The same sources as reported in the federal tax return for 2019

Recovery Startup Business

A startup that is in recovery can be defined as

Began carrying on any trade or business after February 15, 2020,
Has average annual gross receipts of no more than $1 million for the three-tax-year period ending with the tax year that precedes the calendar quarter for which the credit is determined

The ERC is available to a recovery startup business regardless of whether or not it meets the criteria for business suspension or revenue decrease. Recovery Startup Businesses are still subject to some restrictions and special rules.

The maximum amount of credit per quarter is $50,000
The credit can only be used for wages paid between the third and the fourth quarters of 2020
Credits for recovery startups are subject to a maximum of $250 million.

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Credit Amount and Calculation

There are different ERC rules and amounts for different employers and periods of time. The ERC is affected by the following main factors:

How much the employer’s business was affected by the pandemic, either by having to close or reduce operations due to government orders or by having a big drop in income compared to 2019
The number of employees that the employer has in 2019 or 2020/2021 and whether or not they worked during the pandemic
The amount of money paid by the employer to each employee as well as their health insurance during pandemic

To claim the ERC, the employer must fill out and submit a form to the IRS. The employer must provide proof of how much they paid their employees for health insurance as well as the ERC. The IRS will verify the forms, and then give the money to your employer. The money can be used by the employer to pay for health insurance, to pay employees, or refunds on payroll taxes.

ERCs are not available forever. The ERC will expire in September 2022. The employer is required to claim ERCs before they expire, or are no longer available. The employer also has to use the money wisely and not waste it. Employee Retention Tax Credit Filing Deadline

The following information provides more details on the ERC credit and how it is calculated.

Time Period

In 2020, 2021, & 2022, different laws were passed to introduce, amend, and terminate the ERC. The amount of the credit varies according to the time period that it is applied for. The following table summarizes the key features and differences of the ERC for each time period:

Time Period	Law	Eligible Employers	Credit Rate	Qualified Wages
2020	CARES Act	Employers with business suspension or revenue decline of more than 50%	50% of qualified wages up to $10,000 per employee per year	Wages paid from March 13 to December 31, 2020
Q1-Q3 2021	CAA and ARPA	Employers with business suspension or revenue decline of more than 20%	70% of qualified wages up to $10,000 per employee per quarter	Wages paid from January 1 to September 30, 2021
Q3-Q4 2021 (Recovery Startup Business)	ARPA	Recovery startup businesses with average annual gross receipts of no more than $1 million,	70% of qualified wages up to $10,000 per employee per quarter (subject to a $50,000 cap per quarter),	Wages paid from July 1 to December 31, 2021,
Q4 2021 – Q3 2022 (Severely Financially Distressed Employer)	ARPA and IIJA	Employers with a revenue decline of more than 90%	70% of qualified wages up to $10,000 per employee per quarter	Wages paid from October 1, 2021, to September 30, 2022

Number of Employees

The number of employees affects the definition and calculation of qualified wages and health insurance costs for eligible employees. Employers are classified as small or large employers based on their number of full-time workers (FTEs), and the period in which they were employed. The table below summarizes all the rules and thresholds that determine an employer’s size.

Time Period	Small Employer Threshold	Large Employer Threshold
2020	Less than or equal to 100 FTEs in 2019	More than 100 FTEs in 2019
Q1-Q2 2021	Less than or equal to 500 FTEs in 2019	More than 500 FTEs in 2019
Q3-Q4 2021	Less than or equal to 500 FTEs in any calendar quarter in either calendar year beginning after December 31, 2019, and ending before July 1, 2021. If an employer did not have in either calendar year beginning after December 31, 2019, and ending before July 1, 2021, the employer is treated as a small eligible employer if it had less than or equal to 500 FTEs in any calendar quarter beginning after June 30, 2021. For recovery startup businesses, the employer size is irrelevant. For severely financially distressed employers, the employer size is irrelevant if the employer had a revenue decline of more than 90%. Otherwise, the same rules as Q1-Q2 2021 apply.	More than 500 FTEs in any calendar quarter in either calendar year beginning after December 31, 2019, and ending before July 1, 2021. If an employer did not exist in either calendar year beginning after December 31, 2019, and ending before July 1, 2021, the employer is treated as a large eligible employer if it had more than 500 FTEs in any calendar quarter beginning after June 30, 2021.

To count FTEs for a given year or quarter, an employer must use the following steps:

Count the number of employees who worked at least 30 hours per week (or at least 130 hours per month) for each month in the year or quarter
Add up the total hours worked by all other employees (who are not counted as FTEs) for each month in the year or quarter
Divide the total hours by120and round down to the nearest whole number
Add the number of FTEs from Step One and Step Three for each month in the year or quarter
Calculate the average number of FTEs by adding up the monthly totals and dividing by 12 (for a year) or 3 (for a quarter)

Qualified Wages and Health Insurance Costs

Qualified wage is the number of wages that are paid to employees who qualify during a time when a business has been suspended or revenue has decreased. Qualified wages can include severance payment, bonuses, severance tips, sick pay, family pay and other forms compensation. Qualified wage also includes the cost of health insurance for eligible employees. This may include premiums, deductibles, co-pays, or co-insurance.

The definition and calculation of qualified wages and health insurance costs depend on the employer size and the time period. The following table provides a summary of the rules for different scenarios. Employee Retention Tax Credit Filing Deadline

Employer Size	Time Period	Qualified Wages and Health Insurance Costs	Example
Small	2020	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not	An employer with 80 FTEs in 2019 paid $8,000 in wages and $2,000 in health insurance costs to an employee in 2020. The employer had a revenue decline of more than 50% in Q2 2020. The qualified wages and health insurance costs for Q2 2020 are $10,000.
Small	Q1-Q3 2021	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not	An employer with 400 FTEs in 2019 paid $12,000 in wages and $3,000 in health insurance costs to an employee in Q1 2021. The employer had a revenue decline of more than 20% in Q1 2021. The qualified wages and health insurance costs for Q1 2021 are $15,000.
Small	Q3-Q4 2021 (Recovery Startup Business)	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not (subject to a $50,000 cap per quarter)	A recovery startup business that began operations in March 2020 paid $9,000 in wages and $1,000 in health insurance costs to an employee in Q3 2021. The business had average annual gross receipts of $800,000. The qualified wages and health insurance costs for Q3 2021 are $10,000.
Small	Q4 2021 – Q3 2022 (Severely Financially Distressed Employer)	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not	An employer with 600 FTEs in Q2 2019 paid $11,000 in wages and $4,000 in health insurance costs to an employee in Q4 2021. The employer had a revenue decline of more than 90% in Q4 2021. The qualified wages and health insurance costs for Q4 2021 are $15,000.
Large	2020	Wages and health insurance costs paid to an employee for the time that the employee did not work (up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship)	An employer with 120 FTEs in 2019 paid $10,000 in wages and $2,000 in health insurance costs to an employee who worked full-time (40 hours per week) in 2020. The employer had a business suspension due to a government order in April 2020. The employee did not work for two weeks in April 2020. The qualified wages and health insurance costs for April 2020 are $2,308 ($10,000 x2/52+$2,000 x2/52).
Large	Q1-Q3 2021	Wages and health insurance costs paid to an employee for the time that the employee did not work (up to the amount that the employee would have been paid for working an equivalent duration during the 90 days immediately preceding the period of economic hardship)	An employer with 550 FTEs in 2019 paid $15,000 in wages and $5,000 in health insurance costs to an employee who worked full-time (40 hours per week) in Q1 2021. The employer had a revenue decline of more than 20% in Q1 2021. The employee did not work for three weeks in Q1 2021. The qualified wages and health insurance costs for Q1 2021 are $5,769 ($15,000 x3/13+$5,000 x3/13).
Large	Q3-Q4 2021 (Severely Financially Distressed Employer)	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not (only if the employer had a revenue decline of more than 90%. Otherwise, the same rules as Q1-Q32021 apply.)	An employer with 700 FTEs in Q4 2019 paid $12,000 in wages and $6,000 in health insurance costs to an employee who worked full-time (40 hours per week) in Q4 2021. The employer had a revenue decline of more than 90% in Q4 2021. The qualified wages and health insurance costs

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Claim and Report the Credit

For an employer to claim the Employee retention credit (ERC), they must submit a federal employment return (Form 951) or a revised employment tax report (Form 941X) to the Internal Revenue Service. The employer must report the qualified wages and health insurance costs paid to eligible employees and the amount of credit claimed for each quarter.

Form 941

Form 941 is used by employers to report their quarterly federal tax liabilities, which includes income tax, Medicare tax, and social security tax. Form 941 also allows the employer to claim the ERC for current or future quarters. Form 941 is used by employers to:

ERC reduces the amount that employers must deposit with the IRS in order to pay taxes.
The employer can request an advanced payment of the ERC credit if it exceeds taxes that they have to deposit. Employee Retention Tax Credit Filing Deadline
You can carry forward any credit balance to subsequent quarters

To avoid making common errors and fill out Form 941 correctly, employers should:

Use the latest version 941 which reflects updates and changes in the ERC.
Follow the IRS instructions and worksheets for calculating the ERC and reporting it.
Use Line 11c to report the qualified wages and health insurance costs paid to eligible employees
Report the amount of credit claimed each quarter using Line 13d.
Use Line 13f for any advance payment received from IRS.
If you need to receive an advance payment, use Line 24.
You can report excess credit on Line 25 for the following quarters.
Sign and date Form 941, attaching any supporting documents, schedules, or schedules.

Here are some tips and resources to help you fill out Form 941:

Use electronic filing services (efile) and online services to submit the Form 941 faster, more securely
Visit the IRS website to get the latest updates, FAQs, and guidance regarding Form 941 and ERC.
Need clarification? Contact an IRS agent or tax professional.

Form 941-X

Form 941-X is used to correct errors or make adjustments on a previously filed Form 941. The employer can also claim the ERC retroactively by using Form 941X. Employers can use Form 941/X for Employee Retention Tax Credit Filing Deadline

Claim refunds or credits for taxes overpaid due to the ERC
Report any additional wages or health insurance costs that are paid to employees who are eligible but not reported on Form 951.
Correct any mistakes or omissions made on Form 941 that affect the amount of credit claimed

To fill out Form 941-X correctly and avoid common errors, the employer should:

Use the most recent version of Form 941X, which reflects any changes or updates to the ERC laws.
Use the IRS worksheets and instructions to calculate and report the ERC
Use Part 2 of Form 941 to indicate which lines are being amended or corrected.
Use Part 3 to explain your corrections or adjustments on Form 941.
Use Line 24 to report any additional qualified wages and health insurance costs paid to eligible employees
Use Line 25 to claim any additional credit for each quarter.
Use Line 26 to report any credit or refund due to the ERC claim.
Sign and date Form 941-X and attach any supporting documents or schedules

Some tips and resources for filling out Form 941-X are:

For each quarter to be adjusted or corrected, you must submit a different Form 941X. Employee Retention Tax Credit Filing Deadline
Fill out Form 941-X immediately after you find an error in Form 941
Visit the IRS website to get the latest updates, FAQs, and guidance regarding Form 941-X, the ERC, and other forms.
Need clarification? Contact an IRS agent or tax professional.

Deadline and Statute of Limitations

The deadline for submitting Form 941 generally falls on the last calendar day of the following month. For example, Q1 2020 (January-March) Form 941 will be due on April 30, 2021. Nevertheless, if the employer deposited all taxes due in a given quarter on time, they may file Form 941 before the 10th day. The following quarter. For example, Q1 2020 (January to March) requires that Form 941 be returned by May 10, 2021. Employee Retention Tax Credit Filing Deadline

The deadline to file Form 941-X generally is three years after the date the original Form 941 is filed, or two years after the date the tax is paid. For Q1 2020, (January-March), the Form 941 must be filed by April 30th 2020. If an employee filed Form 941 in April 2020 and paid their tax in April 2020, the deadline to file the Form 941 X is April 30 2023. If an employer filed form 941 on April 30 2020 and paid the tax by June 15, 2020, then the deadline to file Form 941-X will be June 15, 2022.

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Conclusion

Employee Retention Tax Credit (ERC), is a valuable financial benefit that helps employers to keep their employees employed and reduces the impact COVID-19 has on their organization or business.

The ERC, a refundable credit, varies according to the time period and number of employees as well as the amount of qualified wage and health insurance expenses paid to employees who are eligible. You can claim the ERC by submitting Form 941 to the IRS. This form will ask you for the number of employees, the amount paid in qualified wages and insurance costs each quarter, and how much credit is being claimed.

Don’t miss this chance to get a tax break if your employer meets the ERC criteria. The ERC is not available forever and has a deadline and a statute of limitations for claiming it. It is important to file your forms quickly and correctly. This article provides tips and resources that will help you avoid common errors. If you need clarification or assistance, you can contact the IRS.

ERCs are a powerful tool that can help your company or organization, as well as your employees. It can be used to help retain your employees, maintain your cash flow, and recover in the event of a pandemic. We hope that this article helped you to understand more about ERC and the claim process. We thank you for reading. Please stay safe.

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Employee Retention Tax Credit Filing Deadline

What is the ERC?

Employee Retention Credit: This is a credit that employers can claim if they retained employees during the COVID-19 pandemic.

It was created in March of 2020 by the CARES Act and later extended and amended by the CAA Act of December 2020 (Consolidated Appropriations Act of 2021).

Are all ERC applicants eligible?

ERC isn’t available to everyone. Employers who retained their employees and paid them wages between March 13, 2020, and December 31, 2021, are eligible.

You can read more about the criteria here. Here are some highlights.

A government order has suspended the business or organization (wholly or partially) due to COVID-19.
The gross receipts they had for a calendar-quarter in 2020, 2021 or both were less than 10% of their gross receipts during the same quarter last year.
These businesses are recovery startups that have been in operation since February 15, 2020. They also generate gross revenues of no more than $1 million on average per year.

What is the ERC worth?

The amount of ERC an organization or business receives depends on several factors.

Some of these include the time period and number of employees. Others are the amount paid in qualified wages or health insurance to eligible employees. For a detailed explanation of ERC, you can read the article mentioned above.

How to claim ERC

To claim the ERC, an employer must file a federal employment tax reform or an adjusted employment tax return (Form 941-X) with the IRS.

The employer must provide a quarterly report detailing the wages, health insurance and other costs that are eligible for credit as well as the amount claimed.

When is the deadline to submit the ERC form?

The deadlines for filing ERC forms for Forms 941 and form 941 X are different.

The last day to submit Form 941 for each quarter is the last calendar month. In contrast, the deadline to submit Form 941 X is generally set at three years since the date of the original 941. The deadline can be two years after the date the tax was paid. However, the latter date is preferred.