How To File Your Employee Retention Credit in 6 Steps

The COVID-19 pandemic presented significant challenges for numerous businesses, and the recovery process is ongoing for many. 

To help offset the impact, the government provides a solution called employee retention credit, which can be accessed by making amendments to payroll taxes. Continue reading to determine if your business qualifies for this refund and learn how to file for the employee retention credit on your own.

>> Use Bottom Line Concepts for streamlined and speedy ERC filing! >>

What is the Employee Retention Tax Credit?

The Employee Retention Credit (ERC) is a tax credit that businesses can take advantage of to keep their employees on board during the COVID-19 pandemic. This credit, established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020, provides a refundable grant.

In essence, companies that have been affected by shutdowns or a significant decrease in gross receipts in 2020 and 2021 may be eligible for financial assistance from the government. However, this assistance is only available to small to medium-sized businesses.

As part of a broader relief package for the pandemic, employers have the opportunity to receive up to $26,000 per retained employee. This means that they can receive up to $5,000 per employee for 2020 and $7,000 per employee for the first three quarters of 2021. 

The specific amount that a company is eligible for depends on the wages and healthcare expenses incurred for their team.

What Companies Qualify for the Employee Retention Tax Credit?

To be eligible for the employee retention tax credit, your business or non-profit organization must meet the government’s criteria for both 2020 and 2021. In order to meet the requirements, companies must have encountered at least one of the following situations:

• A government edict in your state caused your firm to shut entirely or partly. The COVID-19 epidemic must have been the cause of this decree
• The gross revenues of your company saw a particular reduction

There have been changes in the rules regarding a “decline in gross receipts” from 2020 to 2021. In the 2020 tax year, your company needed to experience a 50% decrease in gross receipts for each quarter compared to the same period in 2019. 

Additionally, businesses were limited to having 100 or fewer full-time employees, excluding owners.

In 2021, the government made changes, and now businesses must have at least a 20% drop in gross receipts per quarter compared to 2019. During this time, companies can qualify if they have less than 500 full-time employees, excluding ownership.

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What’s the Deadline for Applying for an ERC Refund?

Typically, it’s possible to correct mistakes or modify your payroll taxes within three years after submitting them. Businesses that are interested can still submit applications for the Employee Retention Credit (ERC). 

For refunds related to 2020 claims, the deadline to file is April 15, 2024. Any amendments for 2021 can be made until April 15, 2025.

How To File Your Employee Retention Credit In 6 Steps

Although the CARES Act has already passed, there is still an opportunity for you to apply for the employee retention credit. To receive your reimbursement from the government, follow these steps.

Step 1: Pull Together Your Business Payroll Paperwork

Before proceeding, it’s essential to have your payroll details from the 2020 and 2021 tax calendars. In case you did not maintain accurate records during this period, seeking assistance from an external party might be necessary to gather the required information.

To assess your eligibility for government reimbursement, it’s crucial to know the number of employees you retained on the payroll during the pandemic. By having this documentation, you can determine if your company meets the criteria.

Step 2: Determine if You’re Eligible

Not all small or medium-sized businesses meet the requirements for the employee retention credit. As the CARES Act spanned two years, the criteria changed from one year to the next.

If your business was impacted by government-mandated shutdowns or experienced disruptions to trade or logistics during the COVID-19 pandemic, you’re eligible for the employee retention credit.

Alternatively, if your revenue suffered losses, you can still take advantage of the employee retention credit. In the 2020 tax year, you must have experienced a 50% decline in gross receipts compared to the same quarter in 2019. In 2021, your earnings for the same period must be less than 80% of what they were in 2019.

For the employee retention credit in 2020, your business needed to have fewer than 100 full-time employees. This threshold was increased to 500 for the three eligible quarters in 2021.

Any business that meets these requirements can claim the employee retention credit for retaining staff during the COVID-19 pandemic.

Step 3: Calculate Your Credit

It’s not possible to fully recover all the wages paid to employees during the years 2020 and 2021. The government has set a maximum limit of $10,000 per employee per period for the employee retention credit.

In 2020, the government provided business owners with a reimbursement of 50% of qualifying wages for each employee they retained. This means that the IRS would pay up to $5,000 per employee.

In 2021, the government increased the payouts to businesses significantly. For the first three quarters of the year, employers could receive 70% of qualifying wages paid to employees. As this reimbursement covered three quarters, companies were eligible to receive up to $21,000 per employee.

To illustrate, let’s consider Fred’s Tackle Shop, which kept all ten employees on the payroll throughout the shutdown. Each employee at the tackle shop earns $30,000 per year.

Even though the employees earn more than $10,000, the government limits the eligible wages to this amount. For the entire year of 2020, the government reimburses Fred with $5,000 per employee (50% of qualifying wages). Therefore, Fred’s credit for 2020 is $50,000.

In 2021, Fred will be entitled to 70% of each employee’s qualifying wages for the first three quarters. This means he can receive $7,000 per employee, totaling $70,000 per quarter. Since he is eligible for three quarters, Fred will receive a total of $210,000 for the year.

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Step 4: Fill Out Form 941-X

To ensure that you receive the full credit for your business, you can now submit a return to the IRS. Since the Employee Retention Credit (ERC) expired in 2021, you’ll need to complete a Form 941-X to claim the funds you were eligible for in a previous quarter.

To proceed, make sure you have each original Form 941 that you previously filed. Keep in mind that you can only fill out one Form 941-X for each quarter. If you’re claiming the employee retention credit for both 2020 and 2021, you’ll need to complete four separate forms.

In the first section of the form, provide your company information, including your business name, address, and employer identification number. In Part 1, indicate that you’re filing a Claim for overreported tax amounts.

Moving on to Part 2, check the box on line 3 indicating that you didn’t withhold any money from your employees. Also, check the box under 5d to confirm this.

In Part 3, your main focus should be on the boxes under line 18a, which pertain to the nonrefundable portions of the employee retention credit. To determine this portion, use Worksheet 1 from your Form 941. Once calculated, record the total from line 18a on line 23.

For the refundable employee retention credit, you will use line 26a. This information can also be found on Worksheet 1 of Form 941 you filed for the representative quarter. The total sum of lines 23 and 26a should be recorded on line 27.

Line 30 is where you should record your qualified wages for the employee retention credit. Lastly, under line 43, provide a detailed summary explaining that you’re requesting amended ERC returns.

Keep in mind that this process can be tedious, and corrections can only be made for one quarter at a time. It’s crucial to fill out the form accurately and completely to avoid any delays in receiving your reimbursement from the IRS.

If you find the process overwhelming, it may be beneficial to seek assistance from an ERC company that specializes in filing these forms. Our top recommendation for fast and affordable processing is Bottom Line Concepts.

Step 5: Submit the Form to the IRS

Once you have finished filling out your Form 941-X, it’s important to promptly submit it to the IRS. Fortunately, you can send it using the same method as your regular payroll forms.

Please note that the IRS does not accept electronic submissions for Form 941-X. Depending on your state, you will need to mail it to either the Department of Treasury in Ohio or Utah.

Step 6: Wait for your Reimbursement

Currently, the IRS has been inundated with requests for employee retention credits for a considerable amount of time. As a result, there is a significant backlog of forms, causing delays in processing and receiving your refund.

Although it’s difficult to provide an exact timeline, it’s wise to anticipate a waiting period of approximately six months to a year before you receive your ERC funds from the government.

If your business is facing severe financial difficulties, there are ERC processing companies, such as Omega Accounting Solutions, that offer bridge loans. These loans can provide you with the necessary funds within a few business days to cover expenses while you await your refund.

>> Check ERC Status With Bottom Line Concepts >>

Employee Retention Credit vs. The Paycheck Protection Program

In 2020, the CARES Act brought about the employee retention credit and the paycheck protection program. How do these two initiatives connect, and can a company benefit from both of them?

What Is the Paycheck Protection Program?

During the initial outbreak of the COVID-19 pandemic, certain organizations sought assistance from the Small Business Administration’s payroll protection program (PPP). This program offers loans of up to $10 million to help companies facing difficulties due to the virus.

These loans can be utilized to cover expenses like mortgage or rent payments, utilities, and payroll costs. If the loan is used for these approved expenses, it can be fully forgiven. However, employers must submit a forgiveness application within a specified timeframe, or they will be responsible for repaying the loan.

Can I File for Employee Retention Credit if My Business Received a PPP Loan?

Initially, businesses were not allowed to receive benefits from both the Employee Retention Credit (ERC) and the Paycheck Protection Program (PPP) by the government. However, the Consolidated Appropriations Act of 2020 revised the regulations, enabling companies to take advantage of both financial aid opportunities simultaneously.

Nevertheless, a business still needs to meet the specific requirements for either a PPP loan or an employee retention credit. The eligibility criteria for each are distinct, and certain organizations may only qualify for one of them.

It’s important to note that businesses cannot claim payroll expenses twice. It’s not permissible to consider a payroll expense as both a forgivable cost for PPP loan forgiveness and as an ERC wage.

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Use an ERC Company to File Your Credit

Fulfilling and sending your request for the employee retention credit to the IRS requires considerable effort. If you’re uncertain about your ability to navigate the entire process, don’t lose hope.

Several companies specializing in ERC have emerged to handle the entire procedure on your behalf. Some even provide a complimentary questionnaire to determine your eligibility. They only receive payment once you’ve obtained reimbursement from the government.

Below, we’ve listed our preferred ERC companies that can help you recover every cent you’re entitled to due to the financial impact of the COVID-19 pandemic.

1. Bottom Line Concepts

Bottom Line Concepts is our top recommendation when it comes to obtaining your ERC from the government. The company has a strong track record of successfully retrieving refunds from well-established organizations. Some of its notable clients include GNC, Domino’s, Martha Stewart Living, and the Boston Red Sox.

The company emphasizes transparency by openly sharing that it has recovered $4 billion in credits and provides a contact number on its website’s homepage. You can either fill out an online form to check if you qualify for a grant or schedule a phone call to discuss your options.

Although Bottom Line Concepts does not mention their fees on their website, it’s evident that they retain a portion of your refund to cover their expenses. You only need to make the payment once they confirm your refund. If you do not receive reimbursement, there is no obligation to pay.

Pros: 

• Worked for multiple notable firms
• Credits recovered over $1.2 billion
• Risk-free for your business

Cons: 

• Pricing not stated
• It can take some time to receive a callback
• Lacks bridge financing

2. Omega Accounting Solutions

Omega Accounting Solutions is a well-established firm that specializes in various tax credits. Lately, they have been particularly focused on the ERC and its potential benefits for businesses.

The team at Omega Accounting Solutions possesses a comprehensive understanding of tax laws and is dedicated to maximizing your refund. They meticulously review their work at every stage to avoid any time-consuming errors. This ensures that you receive your funds promptly.

To initiate the process, simply fill out an eligibility form on Omega’s website. If you meet the necessary government requirements, you will then need to upload payroll documents from 2020 and 2021 for Omega to analyze. They will handle all the calculations and provide you with the completed forms to submit to the IRS.

If you require immediate funds, Omega Accounting Solutions offers bridge loans that can be tailored to your expected ERC refund. No upfront payment is necessary, and you can expect to receive the funds in as little as three days.

Pros: 

• Include an ERC calculator
• The procedure of applying is swift
• Provides financing for bridges

Cons: 

• Fewer clients
• No price information
• Confusing setup

>> Check ERC Status With Omega Accounting Solutions >>

3. ERC Assistant

ERC Assistant was created by a group of business owners who went through the employee retention credit process themselves. They were able to receive $1.5 million more than expected and decided to assist other companies in achieving the same results.

To determine if you qualify for their services, ERC Assistant starts with a quick 45-second questionnaire. If you meet the requirements, they will recommend the best accounting firm for you based on your quiz results. By working with a firm that understands your business, you can speed up the process and increase your chances of success.

With their efficient process, you can have your forms submitted in just one to two weeks. In many cases, you can also eliminate the need for your payroll company, saving you even more time and money.

It’s important to note that fees vary for each company based on the level of effort required and the firm you choose. However, regardless of your choice, ERC Assistant ensures the safety of your information through their secure client portal.

Pros: 

• Accounting firm suggestions
• Founded by other entrepreneurs
• Fast qualification

Cons: 

• Price unknown
• No bridge loans
• No guarantees

>> Check ERC Status With ERC Assistant >>

How to Check the Status of Your ERC Refund

The IRS takes a few months to process ERC refunds, but you won’t be left in the dark throughout the entire process. Here are three ways to stay informed about the status of the funds you’re expecting from the government.

1. Check With Your ERC Filing Service

When you utilize an ERC filing service, they typically provide comprehensive guidance on the filing procedure and the expected arrival time of your refund. In numerous instances, these companies expedite the submission of your application to the IRS, resulting in faster reimbursement.

2. Call the IRS

The refund inquiries page of the IRS provides a contact number that you can call to receive updates on your claim. An IRS representative will eventually answer any questions you have regarding your refund.

As anticipated, the IRS receives a high volume of phone calls, resulting in a delay in connecting with an agent. Fortunately, the IRS offers a more convenient option to track your refund status through their online portal.

3. Use the IRS Refund Status Tool

For a prompt update on the status of your ERC refund, simply use the IRS’s refund status tool. This tool is updated daily and provides details about your claim and the estimated time for receiving a refund.

Additionally, the tool can notify you of any issues that may require your attention. Without using this tool, it could take a while to hear from the IRS, resulting in unnecessary delays in processing your refund.

>> Check ERC Status With Bottom Line Concepts >>

How To File Your Employee Retention Credit Frequently Asked Questions (FAQs)

If you’re seeking further details regarding the employee retention credit and how to file for it, this FAQ might provide the information you need.

How Do I Submit an ERC to the IRS?

To send an ERC (Employee Retention Credit) to the IRS, you must use Form 941-X. This form is specifically designed for making changes to payroll tax filings that have already been submitted. Once you have filled out the form, you will need to send it by mail to the Department of the Treasury in either Ohio or Utah, depending on your state.

How Long Does It Take the IRS to Process ERC?

Currently, it can take the IRS approximately six months to a year to issue a refund. Generally, the IRS handles refund requests in the sequence they’re received.

How Much Do Companies Charge to Do ERC?

Typically, ERC Companies will deduct around 20% to 30% of your refund as a fee for handling and submitting your paperwork. Although this may seem like a substantial portion of your credit, it’s important to weigh it against the time and effort required to complete the process on your own.

Do You Get a Check for the Employee Retention Credit?

Once you have submitted your refund request, the IRS will issue a check to you for the employee retention credit. It’s important to note that this check isn’t a loan, and you’re not required to repay it to the government.

Bottom-line on How To File Your Employee Retention Credit

The employee retention credit is a valuable source of additional funds for your small or medium-sized business. To make the most of this opportunity, it’s crucial to have a good grasp of your payroll system. If you need assistance, consider partnering with a trusted ERC company that can take care of much of the process on your behalf.

>> Check out Bottom Line Concepts today for fast and efficient ERC filing! >>

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