The COVID payroll tax refund you might miss | Yelp

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In response to the pandemic and its enormous effect on small businesses, the federal government has passed a number of relief bills. You’re probably familiar with PPP loans, created by the $2 trillion CARES Act. But did you know that the CARES Act also created the Employee Retention Credit (ERC)?

If you are a small or medium business owner who kept your full-time or full-time equivalent W2 employees on the payroll during COVID, you are likely eligible for a payroll reimbursement (the ERC). If you qualify, that means up to $26,000 per employee.

And unlike the Paycheck Protection Program (PPP) which ended in 2021, this opportunity is still available. Let’s see what this could mean for owners and employees.

What is that?

It’s known as the Employee Retention Credit (ERC), and if you haven’t heard of it, you’re not alone. While 70% to 80% of small and medium-sized businesses would qualify for the refund, many business owners and their accountants have no idea it exists, leaving huge sums of money on the table.

The ERC gives eligible companies the opportunity to claim a substantial tax refund for each employee they kept on their payroll during the last three quarters of 2020 and the first three quarters of 2021.

Break down the numbers

For those who meet the qualifications, the ERC can be incredibly generous. Eligible businesses are entitled to claim a $5,000 tax refund for each employee who worked for them during the last three quarters of the 2020 calendar year.

The benefit becomes even more significant for 2021. Eligible businesses are entitled to claim a tax refund of $21,000 for each employee who worked for them during the first three quarters of the 2021 calendar year.

This means your business could owe a total of $26,000 for each employee. who worked during this 18-month period.

Qualification criteria

The qualifications for the ERC are different for 2020 and 2021. To ensure your business takes full advantage of this benefit, it is important to understand both sets of qualifications.

Your business will be eligible for the 2020 rebate if:

  • You had 100 or fewer employees on your payroll in 2019
  • You kept employees on your payroll in 2020
  • Your business was partially or totally closed due to a government order in 2020
    WHERE
  • Your income fell by at least 50% or more in any quarter of 2020 compared to the same quarter of 2019

Your business will be eligible for the 2021 rebate if:

  • You had 500 or fewer employees on your payroll in 2019
  • You kept employees on your payroll in 2021
  • Your business was partially or totally closed due to a government order in 2021
    WHERE
  • Your revenue fell by at least 20% or more in any of the first three quarters of 2021 compared to the same quarter of 2019

As you can see, the qualifications for the 2021 refund are more inclusive than the 2020 ones. Additionally, the 2021 refund is significantly higher than the 2020 refund.

If you are still unsure whether your small or medium-sized business meets one of these sets of qualifications, you can contact a professional ERC reimbursement expert such as Innovation Refunds for free answers.

Cafe employees
Photo by Ketut Subiyanto

Common error

One of the reasons why so many small and medium-sized businesses have yet to apply for their ERC refund (apart from a lack of awareness) is that they mistakenly believe that they do not meet certain conditions.

Check out some of these common misconceptions.

1. “My business had to be shut down at some point.”

Your business does not need to have been completely closed to qualify. You may still be eligible if your business:

  • Travel restrictions experienced
  • Was unable to hold necessary group meetings
  • Could not receive deliveries from vendors
  • Had to reduce its product or service offerings

2. “My business cannot apply for an ERC refund if it received a PPP loan.”

According to the tax, businesses that received a small business interruption loan under the Paycheck Protection Program (PPP) can still apply for an ERC refund. The only caveat is that you cannot claim ERC for employee wages that were counted as payroll costs to get your PPP loan forgiveness.

3. “I was not eligible for an ERC refund in 2020 so I will not qualify in 2021.”

Qualifying for a 2021 ERC refund is more inclusive than in 2020. Additionally, the 2021 benefit is significantly greater.

How to claim your ERC refund

To apply for the ERC, you will need to amend two years of forms that were previously submitted to the IRS – you can do this with the form 941X. To properly complete this form, you will need to report qualified wages for each quarter of 2020 and 2021 on your federal employment tax returns. You will also need to report any qualified sick leave and qualified family leave pay for which you are entitled to credit under the Families First Coronavirus Response Act (FFCRA).

Many small businesses prefer to get help with the claims process to ensure they follow all rules and regulations. Plus, it’ll probably save you a lot of time. You can hire the services of a professional tax refund expert who specializes in employee retention credit, such as Innovation Refunds. Experts like this handle the qualification, paperwork, and filing process and only take their commission once you’ve been paid.

The take-out sale

The COVID-19 pandemic has been an extremely difficult challenge for all of us. Small and medium-sized businesses like yours have felt the brunt of government-ordered shutdowns, supply chain disruptions and soaring inflation.

But with small businesses being the backbone of this country, the US government wants to help. Programs like Employee Retention Credit are still available, but they won’t be for long.


About the Author

Howard Makler is co-founder and CEO of Innovation Refunds, a team of world-class tax attorneys and CPAs who have helped over 10,000 businesses receive over $1 billion in cash refunds. Co-owned by more than 100 banks, its value derives from its extensive network of corporate partners, financial institutions, cutting-edge technology resources and trusted advisors.

Professional ERC reimbursement experts like Innovation Refunds making the fairly complicated process of making a claim simpler and more likely to be approved. Starting with a 12-minute qualifying survey, its advanced software determines eligibility for ERC reimbursement. The expert team then informs clients what their business is entitled to, with no upfront cost. From there, a company can choose to ask Innovation Refunds to submit all the necessary documents and manage the back and forth with the government. Once your refund is accepted and the funds arrive at your business, Innovation Refunds charges a commission.

The above information is provided for educational and informational purposes only. It is not intended to replace professional advice and may not be appropriate for your situation. Unless otherwise stated, reference to third-party links, services, or products does not constitute endorsement by Yelp.


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