What is ERC?
The Employee Retention Credit (ERC) is a Payroll Tax Credit designed to reward businesses for retaining employees during COVID-19. The credit was initially signed into law March 2020 as part of the CARES Act. The credit was later expanded upon with the Consolidated Appropriations Act in December 2020 and the American Rescue Plan Act in June 2021.
Business Owners can receive a refundable credit up to $5,000 per employee in 2020, and $7,000 per employee, per quarter (excluding the 4th quarter), in 2021 for qualified wages.
Qualified W-2 wages
*Wages paid to 1099 contractors do not qualify
Who is eligible to claim ERC?
Reduction in Revenue
If there is a reduction in your gross receipts in 2020 when comparing to the same quarter in 2019 by at least 50%
If there is a reduction in your gross receipts in 2021 when comparing to the same quarter in 2019 by at least 20%
Impacted by Government Orders
If a governmental order had more than a nominal impact on your business operations, such as:
Required to fully or partially suspend operations tied to governmental orders
Limiting occupancy to provide for social distancing due to governmental orders
Inability to obtain critical goods or materials from supplies because they were required to suspend operations due to governmental orders
Governmental orders to shelter in place preventing employees from going to work
Recovery Start-up Program
annual gross receipts less than
If you started a business after February 15, 2020, and had annual gross receipts less than $1,000,000
How our process works
Get a no-cost assessment to see
if your business is eligible
Quickly provide preliminary
Provide assistance to substantiate
your credit with the IRS
Finalize the credit amounts and
file needed form with the IRS
Work with the IRS to ensure your
credit is received in full
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In 2021, when comparing to respective Q1, Q2, and Q3 of 2019, Company A saw gross receipt reductions by 15%, 22%, and 28% respectively. Because Q3 and Q4 saw more than a 20% reduction in gross receipts, all wages paid during those quarters are considered qualified wages and will be eligible for the Employee Retention Credit.
In 2020, Company B was a non-essential business, and received a governmental shut-down notice from March 13th to April 24th. This shutdown caused a nominal effect on the company’s ability to operate. Because of that, the wages paid during those dates, March 13th to April 24th, are qualified wages and can be used to calculate the Employee Retention Credit.
In 2020 or 2021, Company C saw no relative reduction in gross receipts when comparing to 2019 quarters. Company C was also not required by any level of government to shut down either fully or partially for any amount of time. But Company C’s primary vendor, Company D, was shut down by a governmental notice and severely delayed supplies to Company C. This had a nominal effect on Company C’s ability to serve their customers. This time frame of delay caused by Company D’s shutdown was from March 13th 2020 to February 20th 2021. All qualified wages during these time frames may be used to calculate the Employee Retention Credit.
A: The IRS released updated guidance on the Employee Retention Credit program on September 14, 2023. The news release below explains that the IRS has placed an immediate moratorium through the end of the year on the processing of new ERC claims in effort to curb fraudulent applications by bad actors. While a moratorium may sound alarming, this intentional pause is a common practice used by the IRS.
This is a developing situation, and we will continue to provide updates as new information is released. This what we know so far:
- This news confirms that the ERC is still a valid and valuable tax incentive for qualified businesses – this is not a cancellation of the program.
- The IRS moratorium will delay taxpayers from receiving their ERC funds, but it does not prevent taxpayers from continuing to file for the credit.
- The IRS may ask for more information to process future ERC claims, which we are prepared to provide as it is already part of our normal substantiation process.
- We will only release a credit for your business if we are confident you meet the IRS requirements. The positions we take are in line with the updated guidance that the IRS has provided.
- A large portion of the businesses we evaluate for ERC do not meet IRS eligibility requirements. If we filed a credit on your behalf, it is because we are confident you qualify. You should not be concerned about the credits you have claimed. The positions we have taken continue to be in line with the updated guidance that the IRS has provided.
- The IRS is taking steps to help taxpayers remediate any inappropriately claimed credits in good faith. The IRS encourages taxpayers to evaluate their eligibility for the credit. If you know anyone concerned with a credit they claimed individually or through a company other than ERC Pros, we can offer assistance through our ERC Substantiation Services.
The IRS has not yet provided total clarity on how things will unfold in the coming months, but our team of attorneys and CPAs is closely monitoring the situation.
Employers for whom all of the following is true:
- The claim was made on an amended employment return (Forms 941-X, 943-X, 944-X, CT-1X);
- The amended employment return only added the claim for the ERC – no other adjustments were made;
- The employer seeks to withdraw the entire amount of the ERC claim; and
- The IRS had not paid the claim, or the check for the refund has not been cashed or deposited.
Employers who have already cashed their refund checks or who claimed the ERC on their original employment tax return.
The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims.
Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest, which can save you a lot of money.
A: Review the instructions carefully at: Withdraw an Employee Retention Credit (ERC) claim | Internal Revenue Service (irs.gov)
Section A: You haven’t received a refund and haven’t been notified your claim is under audit.
- Make a copy of the adjusted return with the claim you wish to withdraw.
- In the left margin of the first page, write “Withdrawn.”
- In the right margin of the first page:
- Have an authorized person sign and date it.
- Write their name and title next to their signature.
- Fax the signed copy of your return using your computer or mobile device to the IRS’s ERC claim withdrawal fax line at 855-738-7609. This is your withdrawal request. Keep your copy with your tax records. **If you can’t fax your withdrawal request, you can mail it to the address in the instructions for the adjusted return that applies to your business or organization. Before doing so you should make a copy of the signed and dated first page to keep for your records. It will take longer for the IRS to receive your request if you mail it. Mail your package via certified mail to track and confirm delivery.
Section B: You haven’t received a refund and you’ve been notified your claim is under audit.
If you’ve been notified that the IRS is auditing the adjusted employment tax return that includes your ERC claim, prepare your withdrawal request using the steps in Section A, but don’t submit to the withdrawal fax line or mail it using the address below. Instead:
- If you’ve been assigned an examiner, communicate with your examiner about how to submit your withdrawal request directly to them.
- If you haven’t been assigned an examiner, respond to your audit notice with your withdrawal request, using the instructions in the notice for responding.
Section C: You received a refund check but haven’t cashed or deposited it.
- Prepare the claim withdrawal request using the steps in Section A, but don’t fax the request.
- Write “Void” in the endorsement section on the back of the refund check.
- Include a note that says, “ERC Withdrawal” and briefly explain the reason for returning the refund check.
- Make copies for your tax records of the front and back of the voided check, the explanation notes and the signed and dated withdrawal request page.
- Don’t staple, bend, or paper clip the voided check; include it with your claim withdrawal request and mail it to the IRS at:
Cincinnati Refund Inquiry Unit
PO Box 145500
Mail Stop 536G
Cincinnati, OH 45250
**Mail your package via certified mail to track and confirm delivery.
The IRS will send you a letter telling you whether your withdrawal request was accepted or rejected. Your approved request is not effective until you have your acceptance letter from the IRS. If your withdrawal is accepted, you may need to amend your income tax returns if you already included the claim for the ERC in the filing. If you need help, seek out a trusted tax professional.