Quick background – If you have not explored the Employee Retention Credit (ERC), you may qualify for a payroll tax credit that has resulted in significant refunds. ERC is available for both 2020 and 2021 employers who had paid employees through payroll and experienced a significant decline in gross receipts or whose business was partially or fully suspended due to government mandates. Please reach out to us if you have any questions about qualifications.
The ERC is claimed on Form 941 with quarterly payroll taxes. If you did not claim ERC on your original Form 941, then an amended Form 941 filing will be necessary. You can amend Form 941 up to three years after its original filing due date. For example, Form 941 for the second quarter of 2020 was due in July 2020, so you can file an amended 941 as late as July 2023.
IRS Processing Times
If ERC Claimed on an Original Form 941 Processing:
Electronically filed Form 941s had IRS processing times within a month. Paper-filed original Form 941s are typically processed within 3-4 months. If your originally filed Form 941 claim has not been refunded, then it is time to reach out to the IRS or ask a professional to review the Form 941 for any potential errors on your claim.
If ERC Claimed on an Amended Form 941 Processing (under $100,000/quarter):
The IRS has been processing these refunds in about five months. Ex: Your business qualified for the employee retention credit in Q1, Q2, and Q3 2021. The credits were $80,000 in Q1, $75,000 in Q2 and $90,000 in Q3. The total amounts are well over $100,000, but each quarter is under $100,000 so these should process within five months.
IF ERC Claimed on an Amended Form 941 Processing (over $100,000/quarter):
Currently, the IRS has been processing these within about 6-8 months. If your amended 941 was filed in late 2021, it could be 10 months before seeing a refund. The IRS does review the credits over $100,000 quarterly a little closer before issuing those refunds.
What Should I Expect if I Recently Filed Form 941X to Claim an ERC?
Typically, you will receive a letter from the IRS stating that you have an overpayment on your account. A refund check will follow that letter within a week or so. The refund check will have a quarter listed (Ex: 3/2021 = Q1 2021) in the memo of the check as well as the interest paid on the refund. In several cases, we have seen the IRS send letters requesting additional information or with questions on the filing. Please contact your ERC advisor to help resolve these situations. They are typically minor issues that can be resolved quickly.
Strategies to Help Enhance the ERC Amount
One of the most important items to know when calculating the credit is that there is no “double dipping” allowed for recipients of Paycheck Protection Program (PPP) loans. You CAN NOT use the same employees’ wages to claim the credit and use those same employees’ wages as a payroll cost for PPP loan forgiveness. However, you CAN use wages during the PPP-covered period that were not needed to obtain the PPP loan forgiveness.
Here are important items to know before calculating your ERC amounts:
- If you qualify for ERC in only one quarter, then try to utilize wages paid in other quarters during a PPP-covered period to satisfy the PPP loan.
- The “double dipping” is based upon your submitted SBA PPP Loan Forgiveness application and, unfortunately, that loan forgiveness application CAN NOT be amended.
- If you submitted $500,000 of payroll costs on your PPP Loan Forgiveness application and you had a $300,000 PPP loan, then you CAN use the excess $200,000 for the ERC calculation. This was clarified by the IRS in Notice 2021-20.
- If the PPP Loan Forgiveness application has non-payroll costs or payroll costs that are only applicable to PPP loans (e.g., retirement plan contributions or state unemployment tax paid) that may be beneficial for maximizing ERC calculations.
- The end of the covered period for PPP loans does allow an accrual for wages that occurred during the covered period. ERC is based upon wages actually paid during a quarter. In some cases, “accruing” additional wages during a PPP covered period that was paid after the covered period can help enhance the credit.
- ERC is based upon aggregated gross receipts. If you have multiple trades or businesses, then you may be able to qualify in multiple entities. Note that in certain situations, this may also disqualify entities for an owner of multiple businesses. It is important to run this analysis as this is an item the IRS will definitely address during an audit.
- Be aware of the “alternative gross receipts” method in 2021 for Q1 – Q3. If a business or organization meets the gross receipts test in a prior quarter, they can use that in the following quarter. Ex: A business meets the gross receipts test in Q2 2021. They can use that to qualify in Q2 2021 and Q3 2021 using the alternative method for the gross receipts test for Q3 2021. The IRS clarified that either method is allowable in each 2021 quarter in Notice 2021-49.
Not Everyone Qualifies
It is very likely that your business or non-profit organization has been contacted numerous times via emails, letters, text messages, TV commercials, and phone calls notifying you qualify for a credit of up to $26,000 per employee. Some third-party ERC processing companies or “experts” are promising that they can get businesses a refund without knowing anything about the employer’s situation. When businesses or non-profit organizations respond, these ERC “experts” are filing many claims with an extremely liberal and aggressive interpretation of eligibility for — and computation of — the credit. Not everyone qualifies for the Employee Retention Credit, so businesses and non-profits need to be wary. Learn more in this article.
If you have any questions on ERC services, please contact the Wegner ERC Team. We have completed these projects for hundreds of clients. We can assist with credit calculations, filing 941-X to claim the employee retention credits, reviewing previously calculated credits, determining qualifications for credits, audit assistance on 941-X IRS audits, and assistance with IRS letters to help resolve delays to your credits.