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  • Writer's pictureCherie Larson

Employee Retention Credit (ERC)



Is your inbox (or spam folder) filled with emails promising refunds of thousands of dollars for retaining employees in 2020 and 2021? Believe it or not, this may be true! However, you need to be careful who you select to help you figure this out.


BACKGROUND

The Employee Retention Credit (ERC) was originally enacted in the CARES Act of 2020. It was later extended in the Relief Act of 2021, the American Rescue Plan Act of 2021, and the Infrastructure Investment and Jobs Act (IIJA). It provided an offset for the employer portion of Social Security taxes as an incentive for employers to retain employees.


This chart on the IRS website provides a good overview of the initial credit, as well as the changes made through the additional legislation: irs.gov/newsroom/employee-retention-credit-2020-vs-2021-comparison-chart


KEY POINTS

  • The business must meet the drop in revenue targets.

  • Any payroll used for PPP forgiveness cannot be used towards this credit.

  • Any W-2 compensation to owners and certain relatives is ineligible.

To receive a refund, you will need to submit an amended 941 (941X). You still have time to do this, even for 2020. The refunds are taking months to process, as they are submitted via mail and require manual processing by the IRS.


Who Should You Select to File for You?

We can unequivocally say, do not use a firm that is spamming you! Know who you are working with and that they are reputable. If you don’t, you run the risk of paying for the preparation and months (or years) later being audited or denied your claim only to find the firm you used is no longer around. Also, be aware that payroll companies like QuickBooks and Gusto do not file these amended forms for you. The firm that does your income taxes is a great place to start. They may be able to refer you elsewhere if they do not do these filings.


Are you needing help with ongoing accounting issues related to your business? Need a firm that is proactive with your needs? Reach out to us!


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