The Employee Retention Tax Credit (ERTC) sunsetted on October 1, 2021, cutting the program by three months. The changes to the ERTC program occurred after President Biden signed into law the Infrastructure Innovation and Jobs Act in November 2021. For businesses that benefit from the program, this means a loss of the 4th quarter of 2021 for claiming tax credits.

What do taxpayers need to be aware of, in addition to the early “cut-off”? Is the deadline for applying to the ERTC approaching? Please read on to find out. 

The Employee Retention Tax Credit (ERTC) Program

The ERTC was set up to allow businesses who kept their employees on the payroll during the COVID-19 pandemic to claim credits on qualified wages paid to employees, including health insurance costs. Per quarter, employers could claim up to $5,000 for each employee for 2020 and $7,000 for 2021. 

The benefit to taxpayers could amount to $26,000 for the two years, considering that only three quarters in 2021 are eligible. 

Due Date to File for ERTC 

Businesses have three years from the tax return’s due date to apply for Employee Retention Tax Credit. To apply, it’s necessary to use the amended quarterly payroll tax return (Form 941X). Therefore, the return must be filed by July 2023 to apply for credit. 

While the technical deadlines are far out, you do not want to wait too long since policies from Congress may change through new bill amendments or a new bill.

Don’t wait to claim the ERTC

The ERTC was part of various stimulus packages to help taxpayers cope with the impact of the COVID-19 pandemic. These included the CARES Act, Consolidated Appropriations Act 2021, and the American Rescue Plan Act. The Government has the right and ability to change aspects of these packages through a new bill or bill amendment. 

Will the Government bring in new legislation or change existing tax laws? No one knows. But think about what happened recently. 

In November 2021, the Government signed the Infrastructure Innovation and Jobs Act. So, 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 — up to $7,000 per employee.

Suppose the Federal Government makes future policy changes that affect ERTC. In that case, if you have not already filed a tax return, taxpayers could lose out on valuable tax credits. 

Claiming for Tax Credit in 2022 and 2023

It’s important to note that money received as credit is taxable in the year when wages are paid, not when the tax credit is received. 

What does this mean for businesses and taxpayers? Now is the time to file Form 941X for 2020 and the first three quarters of 2021. 

How will the actual credit work? 

For example, suppose taxpayers submit Form 941X for 2020, and they receive the credit later this year. In that case, they must update their 2020 tax return to increase taxable income. Likewise, taxpayers can’t deduct ERTCs for tax purposes for any given quarter in 2021. 

Taxpayers who haven’t yet filed their 2021 tax returns and want to apply for the 2021 Employee Retention Tax Credit may want to hold off filing. Instead, it’s best to look at the available ERTCs and include them in the tax return. This prevents submitting an amended 2021 tax return later in the year. 

Get the Best Advice on ERTC

Filing a tax return can be challenging enough without calculating ERTC. That is why we advise taxpayers to 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.

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