The Employee Retention Tax Credit (ERTC) sunsetted on October 1, 2021, cutting the originally planned program short by three months. Although this means that businesses no longer have the ability to claim the tax credit for the year 2022, they can still retroactively claim it by filing an amended tax return through 2024.
A majority of for-profit organizations can look back through their payroll and identify eligible wages paid after March 12, 2020, through the program’s closing.
Changes to the ERTC program occurred after President Joe Biden signed the Infrastructure Innovation and Jobs Act into law in November 2021. This means that businesses qualifying for the program won’t have the ability to claim tax credits during the fourth quarter of 2021.
According to the IRS, “The Employee Retention Credit under the CARES Act encourages businesses to keep employees on their payroll. The refundable tax credit is 50 percent of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.”
In addition to the early cut-off date, what do taxpayers need to know about claiming the Employee Retention Tax Credit? Let’s take a closer look.
What’s the Employee Retention Tax Credit (ERTC) Program?
The ERTC was created by the U.S. federal government to help businesses negatively impacted by the 2020 COVID-19 pandemic. This tax credit allows businesses who retained paid employees to claim credits on qualified wages paid to employees, even including health insurance costs. Per quarter, employers could claim up to $5,000 for each employee during 2020 and up to $7,000 in 2021.
The benefit to taxpayers could add up to $26,000 for 2020 and 2021 because only three quarters of 2021 are eligible.
When Is the Due Date to File for ERTC?
Businesses have three years from the tax return’s due date (April 15) to apply for the ERTC. To apply, they must use the amended quarterly payroll tax return or form 941-X. This means employers can claim the 2020 ERTC until April 15, 2024, and the 2021 ERTC until April 15, 2025.
Don’t wait to claim the ERTC.
These deadlines may seem far away, but Congressional changes through new bills or bill amendments may change ERTC standards or deadlines. The ERTC was part of various stimulus packages implemented to help taxpayers cope with the financial impact of the COVID-19 pandemic, including the CARES Act, the Consolidated Appropriations Act 2021, and the American Rescue Plan Act. Because the U.S. government can alter aspects of these packages at any time, it’s best to file for the ERTC as soon as possible.
Remember that the government signed the Infrastructure Innovation and Jobs Act in November 2021. That means Congress retrospectively wiped out the fourth quarter of 2021 from the ERTC. This impacted businesses that were planning to claim tax credits during that quarter, which was up to $7,000 per employee.
Suppose the federal government makes future policy changes that could impact your company’s ability to claim the ERTC. If you haven’t filed a tax return yet, you could lose out on valuable tax credits.
Claiming the ERTC in 2022 and 2023
It’s important to note that money received as a tax credit is taxable during the year when the wages were paid, not when the tax credit is received. What does this mean for businesses and taxpayers? The best time to file IRS form 941-X for 2020 and for the first three quarters of 2021 is right now.
If taxpayers submit Form 941-X for the year 2020, they receive the credit sometime in 2023. That means they must amend their 2020 tax return to increase taxable income. Additionally, taxpayers can’t deduct the ERTC for tax purposes for any given quarter in 2021.
However, taxpayers who haven’t yet filed their 2021 tax returns and want to apply for the 2021 Employee Retention Tax Credit may want to wait before filing. Instead, it’s best to look at the available ERTCs and include them in the tax return. This means you won’t have to submit an amended 2021 tax return later in the year.
Get the Best Advice on Claiming the ERTC
Filing a tax return can be challenging enough without accounting for the ERTC. That’s why taxpayers should contact Cunningham & Associates to get the best tax advice and learn more about the Employee Retention Tax Credit deadline.
Call us today at (508) 797-5003 for your free ERTC consultation.