Employee Retention Credit 2022: FAQs and More!
The government created the employee retention credit during a time that businesses needed it most. The pandemic caused a lot of companies to shut down or alter their operations to keep up with the changing state and local government rules. This put a significant strain on employees, and to help with that, the government enacted the ERC to incentivize employers to keep their employees.
To learn more about the employee retention credit 2022 and how you can claim these credits, continue reading below. We will cover all you need to know about this credit and how to file your ERC documents properly.
What Is the Employee Retention Credit?
When the Coronavirus pandemic plagued the United States, many businesses of all sizes had to either shut down entirely or partially. Some companies also had to let go of some of their staff members to keep up with or reduce costs.
The employee retention credit, also known as ERTC or ERC, was a program created by Congress to encourage employers to keep their employees on their payroll. When the government first introduced the program, employers were able to claim up to 50% of their employees’ eligible wages between March 13th, 2020, and December 31st, 2020. The limit per employee was about $10,000.
What Are Qualifying Wages?
When filing to claim the employee retention credit, you must first find out how much you paid in qualifying wages. Qualified wages are those paid to your full-time employees in the approved quarters.
In addition to your employee’s wages, you can also claim their qualified health plan expenses. The number of employees you had in 2019, who were full-time, affects the number of qualified wages you can claim.
How Does the IRS Define Full-time Employees?
Per the Internal Revenue Service, a full-time employee is someone who works at least thirty hours a week. On average, someone who works over 130 hours a month also falls under the full-time status.
Note for Businesses With Over and Under 500 Employees
Businesses with more than 500 employees can only claim employee retention credits for wages during “non-working periods.” Those non-working periods are shutdowns. Those with 500 or fewer full-time employees have the opportunity to claim the ERC credit for wages during non-working and working periods.
Who Is Eligible To Claim Employee Retention Credits?
Any private-sector employer that conducted business during 2020 may be eligible for the credit as long as they meet one of two major requirements. The first requirement falls under suspended operations. If your business was either partially or fully suspended during any quarter in the fiscal year 2020 due to a government or state order, you might qualify.
The government order must have stemmed from the coronavirus. For example, if the government deemed your business non-essential and you had to close down, you could apply for the credit. If your business was an essential business and you had to stay open, you still could qualify if the government order required you to reduce your business hours.
A Decline in Gross Receipts
If you do not meet the first requirement, you can still qualify under the decline in gross receipts eligibility. If your business had a significant decrease in gross receipts, you might be able to claim the employee retention credit.
IRS Definition of Partial Suspension of Business Operations
In order for your business to qualify as “partially suspended,” your business operations must have been limited due to a state, federal, or local order. Any proclamation or decree enacted that limited your business operation also counts.
For example, if you own a restaurant and you had to close your dining room due to a government order, but you were still able to fulfill take-out orders, you could qualify. Still handling delivery services or carrying out is considered “partially suspended operations.” As mentioned earlier, partial suspension of business operations could also mean reduced business hours.
Disruption in Business Operations
Partially suspended operations are the same as disruption in business operations. In addition to reduced business hours, several different scenarios could fall under this category.
Disruption in business operations examples:
- Reduction in employee workloads
- Inability to visit a client’s worksite
- Unable to receive goods and materials from suppliers
- A shutdown of your businesses’ vendors
- Additional space needed for social distancing
- Lack of group meetings
- Tasks that your employees could not do from home
- Change in job functions
- Reduction in services offered
If your business retained employees, despite a disruption, you could benefit from claiming the employee retention credit. If you have any questions about your eligibility, it would be best to reach out to a company specializing in employee retention credits.
What Industries Qualify for ERC
Several different industries qualify for the retention credit. When checking your eligibility, the most important thing to focus on is the two main qualifying factors: decline in gross receipts and partial or complete suspension of business.
An example of some industries that qualify include non-profits, real estate, and construction.
Other industries that qualify for the credit:
- Healthcare
- Hospitality
- Retail
- Technology
- Government contractors
- Education
- And more
If you are self-employed, you do not qualify for employee retention credit. However, companies that retained employees due to their ability to work from home do qualify.
Can You Still Get the Employee Retention Credit 2022?
Yes, you can still claim the employee retention credit 2022 as long as you meet the qualifications. The window to claim the ERC credit ended already, you have to claim it retroactively. To retroactively claim the credit, you must fill out Form 941-X, which is the Adjusted Employer’s Quarterly Federal Tax Return.
How To Calculate ERC Credit
For ERTC 2021 wages, you have the opportunity to claim up to 70% of your employee’s eligible wages. You can claim up to $10,000 per qualified employee per quarter. For example, let’s say you have five employees who make $10,000 a quarter. This means you can claim up $7,000 per employee for a total of $35,000 for the quarter.
Under the 2020 ERTC rule, you could only claim 50% of your employee’s wages up to $10,000 per year. The main difference between the update of 2020 and 2021 was that in 2021, you were only able to claim your employee’s yearly salary. Meanwhile, with the 2021 wages, you were able to claim quarterly wages.
How To Claim ERTC 2021
As mentioned earlier, the time to claim the employee retention credit has closed, but you can still claim it retroactively. To claim this credit, you must file Form 941-X.
Tax Form 941-X amends your payroll tax return and alters your information to include the employee retention credit. You can find this form on the Internal Revenue Service website with added instructions.
You will need to mark down any relevant income tax and wages to receive the credit when filling out the paperwork. Although the IRS provides instructions on how to fill out the document, the process of completing the form can take some time.
The form is also quite complex, so make sure you put accurate information and give yourself enough time to look over the information. You may receive a fine from the IRS if there are any inconsistencies.
What Is the Difference Between ERC and PPP?
There is a lot of confusion about the difference between the PPP and the ERC programs. The government created both of these programs with the same goal in mind – to help businesses keep their employees during the shutdown.
The employee retention credit is a tax credit that does not need to be paid back to the government. Instead, the tax credit reduces your tax bill or provides you with a credit for you to use. If you are owed a credit, you have the opportunity to request an advance.
What Is the PPP?
The PPP, or Paycheck Protection Program, is a loan backed by the Small Business Association used to maintain employees. The majority of the loan is to be used for payroll.
Still, you have the opportunity to use it for other things such as mortgage interest, utilities, rent, and owner compensation. As long as you use most of the loan to pay for payroll, you can request the government to forgive the loan.
Can I Claim the ERTC if I Claim PPP?
If you have claimed a loan from the Paycheck Protection Program, you can claim the ERC. Initially, you had to choose one over the other under the CARES Act. Due to the update in the legislature, businesses can now claim the employee retention credit on qualified wages that are not counted as payroll costs under the Paycheck Protection Program.
Employee Retention Credit FAQs
The employee retention credit is a fantastic program that can provide you with either a tax credit or an advance payment, depending on your business’s circumstances and the information you provide on the form. As mentioned earlier in the article, the ERC form is quite complex and can take some time to complete.
It’s not a simple form that takes a few minutes to complete. Below are some common questions business owners like you have asked about the credit.
When Does the ERC Credit Expire?
The employee retention credit ended on November 15th, 2021, but you still have the chance to claim the credit retroactively. You have three years from your initial tax filing to fill out your form.
Will the Government Extend the ERC?
At current, it does not seem like the ERC will be extended. The employee retention credit program was extended by the Relief Act of 2021 and then once more by the American Rescue Plan Act of 2021.
How Long Does It Take To Receive the ERC Credit?
The time to receive the ERC credit varies depending on the government’s processing time. After you file your 941-X Form, you can expect to receive your credit within five to ten months. Some companies report that they received their credit within two to three months.
What Is a Failure to Deposit Penalty?
If your business was ineligible for the ERC in the fourth quarter of 2021, you most likely need to pay back the employee retention credit. You also may need to pay back the advanced payment if you reduce your employment tax deposits to prepare for the 4th quarter of 2021.
The IRS typically sends a “failure to deposit” penalty for underpaying your taxes. To avoid this penalty, it is best to repay the advanced payment by the due date of your employment tax return.
Who Can I Contact for ERC Help?
There are several reputable companies out there that offer assistance with filing Form 941-X. As mentioned earlier, the form is complex and requires a good portion of your time to complete.
As a busy business owner, you most likely do not have the time to take time away from your operations to fill out this document. You also do not want to risk accidentally listing the wrong information, which could result in you paying a penalty. As a business owner, you want to reduce risk during the claims process.
Assistance With Filing the ERC Credit
The employee retention credit 2022 program may have ended already, but you still have an opportunity to claim these credits retroactively. As long as your business meets the requirements and qualifications for the employee retention credit, you can expect to receive an advanced payment.
Filing out the paperwork on your own may be a tedious task that leaves room for error. Instead of calculating how much you could receive and filling out the paperwork, contact us. Our team is here to take care of the entire process on your behalf, and we can answer any questions or concerns you may have.