You have probably seen ads or news about a large government stimulus program that the United States has provided. However, a lot of people don’t know what this refers to or how they may be able to benefit. The Employee Retention Tax Credit (ERC) is one opportunity that provides this large amount of stimulus support. Also known as the ERTC, only qualifying individuals can benefit from this opportunity.
What is the Employee Retention Tax Credit (ERC)?
This program was created in response to the COVID-19 Pandemic. It was first made available through the CARES Act. The point of this opportunity was to encourage employers to keep their employees on their payroll. There are two different programs: the 2020 program and the 2021 program. For the 2020 program, the credit was worth 50% of eligible wages qualifying employers paid to their employees. This only applies to wages paid during a specific timeframe. The timeframe is after March 12th, 2020, and before January 1st, 2021. There are limits to be aware of! The maximum credit that an employee can be worth is $5,000 (for all calendar quarters).
On the other hand, when it comes to the 2021 program, there were some important changes. The ERC raised to 70%! Why is that important? Well, that means one single employee could be worth up to $26,000 annually.
What is Considered Eligible Wages?
For wages to be considered eligible, they must have been paid during a qualifying period. For a timeframe to be considered qualifying, it will need to either be:
- A period where a business or trade fully or partly stopped operations due to a government order.
- During any calendar quarter for 2020 where overall receipts were less than 50% of what they were during the same quarter of 2019
- During any calendar quarter for 2021 where overall receipts were less than 20% of what they were during the same quarter of 2019
Who is Considered a Qualifying Employer?
Not every employer will qualify for this opportunity. Only those that had a business or carried on a trade during the 2020 and 2021 calendar years are actually able to benefit. The business or trade (which includes tax-exempt organizations) must have gone through one of the following:
- Fully stopped operations due to a government order
- Partly stopped operations due to a government order
- Dealt with a specified percentage decline of overall receipts during a calendar quarter compared to the year 2019
What Does it Mean to Stop Operations Fully or Partly?
When talking about stopping operations due to a government order, this eligibility requirement is referring to a business or trade that dealt with limitations in their operations either fully or partly due to government restrictions. For example, let’s say your business wasn’t able to handle standard business operations as a result of limitations with traveling, group meetings, etc. These limitations can be a result of a government restriction like a “Stay at Home Order.” This is an example of what the eligibility requirement refers to!
Is It Still Possible to Get the ERC in 2022?
Yes! Luckily, it is still possible for people to benefit from the ERC. Let’s break it down so you can easily understand. The IRS allows 3 years for people to amend their tax returns. Employers had to file their taxes by July 31st, 2020. That means you can amend this tax return and request a refund by July 31st, 2023. The other filing date that is relevant when it comes to the ERC is October 31st, 2021. That means that filers have until October 31st, 2024, to amend this tax return and request a refund. Since it is 2022, you still have time to amend and request!
Can You Qualify to Get the ERC in 2022?
This is where it can get confusing. While you are still able to get the ERC in 2022, you can’t newly qualify for the credit in 2022. That’s because the only way you can benefit is by amending your already filed tax return. Through this amendment, you can request credit. However, in 2022, there is no possibility for any current claims. You can expect the ERC to come in the form of a cash payment that the IRS provides. That is how it has most frequently been received.
Other Tax Credits to Consider?
Sadly, not everyone will be able to benefit from this ERC. However, there are still beneficial tax credits available that are worth checking out! Some popular supportive tax credits include the following:
- Earned Income Tax Credit (EITC)
- Lifetime Learning Credit
- Adoption Credit
- Child Tax Credit
- American Opportunity Tax Credit
Keep in Mind
Taxes can be tricky! That is why you should always contact a tax professional to help you. They will provide specialized advice based on what you are currently dealing with. On top of that, they can help you understand IRS documentation, help you go through the amendment process, and more. There are plenty of tax service centers that can help people. However, there are also programs that the IRS offers. Two opportunities in particular are:
- Volunteer Income Tax Assistance (VITA)
- Tax Counseling for the Elderly (TCE)
Volunteer Income Tax Assistance (VITA)
For over 50 years, this tax support opportunity has been helping qualifying individuals deal with their taxes. Not everyone is eligible. Only those that:
- Earn no more than $60,000 annually (generally)
- Are disabled
- Don’t speak much English
The Internal Revenue Service (IRS) is the one to manage the program. However, the operation of the program sites falls into the hands of IRS partners. On location at the sites, there will be IRS-approved staff volunteers. The volunteers will be the ones to provide tax counseling assistance.
Tax Counseling for the Elderly (TCE)
Just like VITA, only qualifying individuals will be able to benefit from this opportunity. However, the eligibility criteria are different for TCE. To benefit from TCE an individual must be at least 60 years old. This is a specialized tax support opportunity that can help seniors deal with senior-related tax topics. Just like with VITA, the IRS will manage the program. However, IRS partners will operate the program sites. These sites will have IRS-approved staff volunteers. These volunteers will be the ones providing the senior tax assistance!
You may have seen some news when it comes to the Employee Retention Tax Credit (ERC). The aim of this tax credit was to encourage employers to keep their employees on their payroll. For the 2020 program, the credit was worth up to $5,000 per employee. However, for the 2021 program, the maximum per employee shot up to $26,000! To benefit from this tax credit, you will need to amend your filed taxes to request a refund. If approved, you can expect to see the ERC in the form of a cash payment that the IRS provides.
A good rule of thumb is to get a tax professional to help you with the process! They will be able to make sure the process is handled properly and provide a better understanding of your tax situation. You will want to make sure to file any amendments before the deadline comes up! The absolute latest tax filers have to amend their taxes to benefit from the ERC (if they qualify) is October 31st, 2024. However, there is a deadline of July 31st, 2023, to be mindful of as well. Who knows, you may be able to benefit from this tax opportunity!