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ERC Tax Credits Still Bolstering Businesses That Have Not Recovered From Pandemic

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Businesses Should Take Advantage Of This Government Program While They Still Can

By David Carlucci

The quarantines, shutdowns, and lock-ins of March 2020 feel like ages ago, but businesses across the country still feel the impact of the COVID-19 Pandemic. Fortunately in 2023, the Employee Retention Credit (ERC) continues to support businesses, organizations, and staff recovering from shutdowns and financial losses.

Introduced in the CARES Act and amended in the Consolidated Appropriations Act of 2021, the American Rescue Plan, and the Infrastructure Investment and Jobs Act, the ERC is a refundable tax credit through the IRS for businesses and non-profit organizations of all sizes who held on to employees despite the negative impacts of the COVID-19 Pandemic. Eligible businesses should take advantage of this government program while they still can. In the best cases, ERC benefits can accumulate up to $26,000 per employee. Companies may receive $5,000 per employee for the 2020 calendar year and $7,000 per employee per quarter for the first three quarters of 2021. By the end of March 2023, over $150 billion in returns came out of the ERC – and businesses are still collecting returns to this day.

ERC opportunities are lucrative but are situational and businesses may be audited for fraud and overstated claims even after receiving benefits. The Pandemic’s impact on a business’s operations mainly determines a company’s eligibility for the credit.

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David Carlucci

Organizations might qualify if they partially or fully shut down because of COVID-19, experienced a 50% decrease in gross receipts from the same quarter in 2019, or qualified as a recovery startup for the third or fourth quarters of 2021. The ERC does not support individual taxpayers who are not business owners, business owners without employees, government agencies, employers who did not pay wages from March 13, 2020, to December 31, 2021, and others. Refer to the IRS’s website for more eligibility information.

Depending on when businesses paid and filed their annual tax returns for 2020 and 2021, they may be eligible for tax credits until April 2025. Companies that already filed for both years must have their accountants submit an amended tax return, IRS Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return, or Claim for Refund. Businesses that file Form 941-X must reduce their deduction for wages by the credit amount for the same tax period, which may involve other IRS forms. Additionally, amended tax returns may only be filed if an original employment tax return was filed.

The ERC opened a goldmine for small businesses negatively impacted by the Pandemic and a network of consulting companies assisting with the return process. Many accredited CPAs help facilitate the application process but beware, not every consultant is legitimate.

The IRS warns of scam ERC promoters who have misled ineligible employers for the ERC with their “facilitated application process” in exchange for hefty fees. Employers must watch out for claims of an easy eligibility and application process, large upfront fees and fees calculated on a company’s returns, and many other warning signs. Employers using illegitimate promoters are at risk of identity theft and improper claims – which must be repaid with penalties and interest. All business owners should consult a trusted tax advisor on their eligibility before applying.

If executed properly, the ERC is an excellent opportunity for businesses still recovering from the Pandemic. Although this opportunity will close shortly, business owners must take the application seriously.

David Carlucci consults organizations on navigating government and securing funding. He served for ten years in the New York Senate.