Employee Retention Credit Deadline 2020: Essential Facts and Key Dates

The Employee Retention Credit (ERC) is a refundable tax credit designed to help businesses that continued to pay their employees during the COVID-19 pandemic. It applies to wages paid or incurred from March 13, 2020, to December 31, 2021, and is available for eligible businesses that were either shut down or experienced a significant decline in gross receipts. This financial relief measure aims to support businesses and allow them to retain employees while navigating through these challenging times.

While there are many aspects to consider when claiming the ERC, it is crucial for companies to be aware of the deadlines for filing their claims. The deadline to apply for the ERC for all quarters in 2020 is April 15, 2024, and for all quarters in 2021, it’s April 15, 2025. Employers must use the IRS Form 941-X, “Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund,” to file for the credit. Meeting these deadlines and understanding the requirements is essential, as not every business is eligible for the ERC.

Key Takeaways

  • The Employee Retention Credit provides financial support for eligible businesses during the pandemic
  • The filing deadlines are April 15, 2024, for 2020 claims and April 15, 2025, for 2021 claims
  • Understanding eligibility and requirements is crucial for businesses seeking to claim the credit

Overview of Employee Retention Credit

The Employee Retention Credit (ERC) is a refundable tax credit designed to help businesses that continued to pay employees during the COVID-19 pandemic. It applies to businesses that faced either a shutdown or significant declines in gross receipts from March 13, 2020, to December 31, 20211.

Eligible employers can claim the ERC equal to 50 percent of up to $10,000 in qualified wages (including qualified health plan expenses), on wages paid after March 12, 2020, and before January 1, 20212. It’s essential for employers to understand that not every business qualifies for the ERC, and eligibility depends on specific facts and circumstances.

For 2020, the employee retention credit can be claimed by employers who paid qualified wages after March 12, 2020, and before January 1, 2021, and who experienced a full or partial suspension of their operations or a significant decline in gross receipts4. A comparison chart between the 2020 and 2021 ERC can be found on the IRS website, which details notable differences and clarifications for employers to understand which tax year applies to their situation5.

In conclusion, the Employee Retention Credit has been a significant measure aimed at supporting businesses navigating the challenges brought on by the COVID-19 pandemic. Employers seeking to take advantage of this tax credit should familiarize themselves with the eligibility requirements and deadlines to maximize their benefits.

Footnotes

  1. https://www.irs.gov/coronavirus/employee-retention-credit
  2. https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-overview
  3. https://www.irs.gov/coronavirus/frequently-asked-questions-about-the-employee-retention-credit
  4. https://www.irs.gov/newsroom/irs-provides-guidance-for-employers-claiming-the-employee-retention-credit-for-2020-including-eligibility-rules-for-ppp-borrowers
  5. https://www.irs.gov/newsroom/employee-retention-credit-2020-vs-2021-comparison-chart

Eligibility Requirements

Eligible Employers

Employers can be eligible for the Employee Retention Credit if they have sustained a full or partial suspension of operations or experienced a decline in gross receipts during the specified time period. This includes businesses, tax-exempt organizations, and recovery startup businesses1.

A decline in Gross Receipts

A significant decline in gross receipts is considered when an employer’s gross receipts in a particular calendar quarter fall below 50% of those in the same quarter of 20192. The eligibility for the ERC continues until the employer’s gross receipts reach a recovery threshold of 80% compared to the same quarter in 20193.

Suspension of Operations

An employer is considered to have a full or partial suspension of operations if there is a limitation on commerce, travel, or group meetings due to COVID-19 and orders from an appropriate governmental authority4. In this situation, the employer could be eligible for the Employee Retention Credit.

Recovery Startup Business

A recovery startup business is defined as a business that began after February 15, 2020 and has annual gross receipts of no more than $1 million. These businesses can also claim the ERC for wages paid after June 30, 2021, and before January 1, 20225.

Tax-Exempt Organizations

Tax-exempt organizations are also eligible for the Employee Retention Credit. They must meet the same criteria as other employers, such as experiencing a decline in gross receipts or having a full or partial suspension of operations due to federal, state, or local government orders related to the COVID-19 pandemic6.

Footnotes

  1. Employee Retention Credit | Internal Revenue Service
  2. Frequently asked questions about the Employee Retention Credit
  3. IRS provides guidance for employers claiming the Employee Retention Credit for 2020
  4. Employee Retention Credit – 2020 vs 2021 Comparison Chart
  5. Important additional guidance for employers claiming the employee retention credit
  6. Frequently asked questions about the Employee Retention Credit

Qualified Wages and Maximum Credit

Gross Receipts and Wages

The Employee Retention Credit (ERC) provides eligible employers a refundable tax credit on qualified wages paid to employees between March 13, 2020, and December 31, 2021. For 2020, the maximum credit amount is 50% of qualified wages paid per employee, up to a maximum of $10,000 in qualified wages, resulting in a maximum credit of $5,000 per employee1. Gross receipts play a crucial role in determining an employer’s eligibility for this tax credit2.

An employer’s gross receipts must have declined by more than 50% in a quarter compared to the same quarter in 20193. Additionally, qualified wages differ depending on the size of the employer. For employers with more than 100 full-time employees, qualified wages include only those amounts paid to employees who were not working due to a COVID-related shutdown or gross receipt decline4. For smaller employers (100 or fewer full-time employees), all employee wages qualify for the credit, whether or not the employee was working5.

Severely Financially Distressed Employers

For 2021, a special provision exists for severely financially distressed employers, which are defined as those with gross receipts that are less than 10% of the gross receipts for the same quarter in 20196. In this case, employers with more than 500 full-time employees may also count the wages paid to employees who were working during the qualifying period7.

Regarding the maximum credit amount in 2021, eligible employers can claim up to 70% of qualified wages paid per employee, with a maximum of $10,000 in qualified wages per quarter, resulting in a potential credit of up to $7,000 per employee per quarter8.

Footnotes

  1. Internal Revenue Service: Employee Retention Credit
  2. IRS: Frequently asked questions about the Employee Retention Credit
  3. IRS: Frequently asked questions about the Employee Retention Credit
  4. Internal Revenue Service: Employee Retention Credit
  5. IRS: Frequently asked questions about the Employee Retention Credit
  6. IRS: Frequently asked questions about the Employee Retention Credit
  7. Internal Revenue Service: Employee Retention Credit
  8. Internal Revenue Service: Employee Retention Credit

Interaction with Other Relief Programs

Paycheck Protection Program

The Employee Retention Credit (ERC) interacts with other relief programs, such as the Paycheck Protection Program (PPP). Employers who received a PPP loan in 2020 must be aware that claiming the ERC could affect their PPP loan forgiveness. It is crucial to properly allocate paid wages between the two programs to avoid jeopardizing loan forgiveness.

Shuttered Venue Operators Grants

Another relief program interacting with the ERC is the Shuttered Venue Operators Grants (SVOG). Businesses that received an SVOG cannot claim the ERC for the same wages used to justify the SVOG. Employers need to pay close attention to the rules governing each program to avoid overlaps or potential penalties.

Restaurant Revitalization Grants

Similarly, the Restaurant Revitalization Grants (RRG) program poses potential interactions with the ERC. Restaurants that received RRG funding must ensure they are not including wages used to calculate the ERC under the RRG. Careful tracking and allocation of expenses across these relief programs is essential for compliance and maximizing the benefits of each program.

In summary, businesses must be diligent when claiming the Employee Retention Credit to ensure they follow the guidelines and maintain eligibility for other relief programs such as the PPP, SVOG, and RRG. By carefully tracking and allocating expenses, employers can maximize their benefits and maintain compliance with program requirements.

Claiming the Employee Retention Credit

Employment Tax Returns and Forms

Employers claiming the Employee Retention Credit for 2020 must report the credit on their employment tax returns. The primary form used to claim the credit is Form 941, Employer’s Quarterly Federal Tax Return. Form 941 should include the qualified wages paid and the related health plan expenses for the applicable quarter. The IRS guidance also provides a limited 4th quarter procedure, allowing employers to report qualifying ERC wage amounts for the 2nd and/or 3rd quarters of 2020 on Line 11c or Line 13d of their original 4th quarter Form 941.

Refunding Credits

The Employee Retention Credit is a refundable tax credit, which means that if the credit amount exceeds the employer’s share of Social Security tax, the excess is refunded to the employer. Employers can apply for an advance payment of the credit using Form 7200, Advance Payment of Employer Credits Due to COVID-19, if their employment tax deposits are not sufficient to cover the credit. If the credit is not fully used during a quarter, it can be carried forward to offset employment taxes in future quarters.

Amending Returns and Adjustments

If an employer failed to claim the Employee Retention Credit for qualified wages paid in 2020, they can still do so by filing an amended return using Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return, or Claim for Refund. The employer should provide a detailed statement explaining the reason for the adjustment, the qualified wages, and the health plan expenses for the respective quarter. Employers must file a separate Form 941-X for each quarter with adjustments.

By understanding the requirements for claiming the Employee Retention Credit, employers can take advantage of this financial relief and ensure compliance with relevant tax regulations.

Timing and Deadlines

The Employee Retention Credit (ERC) is a refundable tax credit introduced to support businesses during the COVID-19 pandemic. It applies to wages paid between March 13, 2020, and December 31, 2021, covering businesses that had significant declines in gross receipts or were shut down due to the pandemic source.

Understanding the deadlines for claiming the ERC is crucial for businesses, as it can significantly impact their finances. For the 2020 tax filing year, the deadline to file an Employee Retention Credit (ERTC) claim is April 15, 2024. For the 2021 tax filing year, the deadline is April 15, 2025 source.

The ERC applies to different calendar quarters, which are considered when determining eligibility and calculating the tax credit amount. The credit amounts and eligibility rules vary for different periods within the March 13, 2020, to December 31, 2021, timeframe due to changes in legislation and extensions source.

Employers looking to claim the ERC must file using the IRS Form 941-X, “Adjusted Employer’s quarterly Federal Tax Return or Claim for Refund” source. It is essential for businesses to stay informed about the timing and deadlines to ensure they maximize their potential tax savings through the ERC program.

Additional Guidance and Resources

IRS Notices and FAQs

The Internal Revenue Service (IRS) has provided various resources to assist businesses in understanding and claiming the Employee Retention Credit (ERC). Notice 2021-20 and Notice 2021-49 are two important documents comprising comprehensive guidance on the ERC for tax years 2020 and 2021. These notices, alongside a helpful collection of FAQs, make it convenient for employers to find answers to their specific questions and situations related to the ERC.

COVID-19 Legislation

Throughout the COVID-19 pandemic, several legislative acts have been enacted to offer financial assistance to businesses. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was the first of these pieces of legislation, introducing the ERC in 2020. Subsequent laws, including the Consolidated Appropriations Act, American Rescue Plan Act, Relief Act, and Infrastructure Investment and Jobs Act, have expanded and modified the ERC to cater to evolving economic conditions.

For detailed information on how these laws impact the ERC, visit the IRS’s dedicated Employee Retention Credit webpage.

Seeking Professional Assistance

While the IRS provides extensive resources and guidance on the ERC, navigating the intricacies of tax law can be challenging for many businesses. Given the ever-changing nature of COVID-19-related legislation and its impact on tax credits, it is advisable for employers to seek assistance from a qualified tax professional.

By engaging the expertise of a tax advisor, businesses can ensure they are in compliance with the latest regulations, maximize their ERC benefits, and stay abreast of any additional information and resources provided by the Internal Revenue Service.

Frequently Asked Questions

When was the last date to claim Employee Retention Credit for 2020?

The last date to claim the Employee Retention Credit (ERC) for 2020 was December 31, 2020. The credit applied to employers who paid qualified wages after March 12, 2020, and before January 1, 2021, and who experienced a full or partial suspension of their operations or a significant decline in gross receipts. source

How do I calculate the Employee Retention Credit for 2020?

Calculating the Employee Retention Credit for 2020 involves determining the qualified wages paid to employees during the eligible period. The credit is equal to 50% of the qualified wages up to a maximum of $10,000 in wages per employee for the entire calendar year, making the maximum credit $5,000 per employee for 2020. source

Can I still apply for the 2020 Employee Retention Credit?

You cannot apply for the 2020 Employee Retention Credit now. However, you may amend your tax return for the year 2020 to claim the credit if you have already filed it and are still within the IRS-prescribed time for amending the return. Consult your tax professional for more information on how to amend your tax return to claim the credit retroactively.

What are the eligibility criteria for the Employee Retention Credit in 2020?

The eligibility criteria for the ERC in 2020 included:

  1. Businesses and tax-exempt organizations that experienced a full or partial suspension of their operations due to COVID-19.
  2. Businesses that experienced a significant decline in gross receipts, defined as 50% less than the same quarter in the prior year.
  3. Employers who continued to pay wages during the suspension or during the quarter with a significant decline in gross receipts. source

How does the 2020 Employee Retention Credit affect my tax return?

The 2020 Employee Retention Credit reduces your tax liability but is also refundable – meaning any excess credit beyond your tax liability will be received as a refund. The credit should be reported on the appropriate business tax forms and ultimately will impact the overall tax due or refund. Consult a tax professional to help you understand the specific effects on your tax return.

What is the statute of limitations on the 2020 Employee Retention Credit?

The statute of limitations on the 2020 Employee Retention Credit depends on your tax filing situation. Generally, the IRS allows three years from the due date of the original tax return or two years from the date the tax is paid, whichever is later, to claim a credit or refund. Consult a tax professional to understand your specific situation and how the statute of limitations may apply.

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