How to Apply for Employee Retention Credit: A Step-by-Step Guide for Your Small Business

Are you curious about the Employee Retention Credit (ERC) and if it can help your small to medium-sized business? Did your business face challenges in 2020 or 2021? Then you may be eligible to claim it.

While COVID-19-related shutdowns and restrictions may be a thing of the past, many small businesses are still feeling the effects. After two years of shutdowns and restrictions, many business owners like yourself report being overwhelmed, burnt out, and in debt.  

The impact of COVID on small businesses can’t be understated, as approximately 75% of small business owners reported that they expected to run out of on-hand cash in two months or less.

Yet, many eligible small businesses have not taken advantage of the ERC tax refund. This payroll tax refund is meant to help qualified businesses that kept employees on payroll in 2020 and/or 2021 – and can provide relief in the form of tens of thousands of dollars for qualified companies.

Why is this? According to a leading provider of audited firmographics and financial metrics:

• Only 67% of business owners have heard of the ERC.
• Of those who have heard of the ERC program, 68% still need to take advantage of it.

How does The Employee Retention Credit work?

Due to financial suffering across the country, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help businesses get back on their feet – with a special section called the Employee Retention Credit (ERC).

However, there have been many changes to the programs – which have left many businesses needing help understanding ERC qualifications.

The ERC was first established under the CARES Act and signed into law on March 27, 2020. This first iteration stated that businesses were eligible for ERC if 50% of qualified wages were paid after March 12, 2020, and before January 1, 2021.

It should be noted that the CARES Act also established the PPP (Payroll Protection Plan), which many American businesses elected to take advantage of. Subsequently, there were changes to the regulations.

On December 27, 2020, the Consolidated Appropriations Act was established and made a few major changes to the ERC, most of which applied to start on January 1, 2021. This extended through the first two quarters of 2021 and increased the refund to 70% of the first $10,000 of qualified wages for two quarters.

All of these changes have made it hard for business owners and tax professionals to keep up with regulations. That’s why we exist. As an ERC resource, Innovation Refunds works with an independent network of tax professionals that stays up-to-date with these changes to help you stay informed about IRS procedures and requirements.

When is the ERC deadline?

Eligible businesses can still apply for the ERC with Innovation Refunds.

In fact, the Internal Revenue Service (IRS) has yet to provide updates on the final deadline for the ERC. That said, in light of this uncertainty, if your business qualifies it is best not to delay your claim.

How to apply for Employee Retention Credit

As we mentioned above, changes to programs have left many businesses needing help understanding ERC qualifications. That’s also not to mention the complexity of navigating the ERC.

While you can opt for gathering the required documents and submitting your Employee Retention Credit application yourself, it can be a daunting task due to the numerous rules and regulations.

That’s why partnering with an experienced company like Innovation Refunds is important. Letting an independent tax attorney step in and help file your amended payroll returns not only provides the peace of mind of knowing you have experienced professionals on your side, but our network will also keep you updated from start to finish.

Here are the steps you can take:

1.) CHECK ELIGIBILITY

• Create an account and tell us a little bit about your business.

2.) FILE YOUR CLAIM

• Submit your documents to our team of independent tax attorneys

3.) GET YOUR REFUND

• Once your eligibility is confirmed and your claim has been submitted, the next step is to wait for the US Treasury to confirm they are sending your check(s)
  

Continue reading to discover how to apply for the Employee Retention Credit program in five simple steps.

Step 1: Determine ERC eligibility for your small business

While the qualifications have changed over the past few years, in the most general sense, your business must have endured either a decline in revenue or an interruption in operations during the COVID-19 pandemic of 2020 and 2021.

It’s important to remember that this is more of an “either/or” test. Here’s a quick breakdown of the specifics:

Some business owners are aware of only the reduction in revenue criterion; it is worth emphasizing here that businesses can potentially qualify if they were shut down or experienced partially suspended operations.

What is the Government Order Test?

As we mentioned above, per the IRS, “the credit is available to eligible employers that paid qualified wages to some or all employees after March 12, 2020 and before January 1, 2022. Eligibility and credit amount vary depending on when the business impacts occurred.”

Generally, businesses and tax-exempt organizations that qualify are those that “were shut down by a government order due to the COVID-19 pandemic during 2020 or the first three calendar quarters of 2021.”

Just to recap, an employer may be eligible for the ERC if it experiences a full or partial suspension or modification of operations due to COVID-19-related orders from an appropriate governmental authority.

For example, in the construction industry, many construction companies were deemed “essential,” but many suffered inconveniences, setbacks, and regulations that impeded business, such as:

• Reductions in crew size, due to government orders
• Permit and inspection process delays
• Job site access restrictions
• Supply chain issues such as shortages of materials, parts, or equipment
• Limited operating hours
• Project delays  
  

What is a significant decline in gross receipts?

A decline in gross receipts is most easily described as a “reduction in revenue.” How do you calculate this? You need to compare your annual gross receipts in a year-over-year review.

Per the IRS, “A significant decline in gross receipts is calculated by determining the first calendar quarter in 2020 (if any) in which an employer’s gross receipts are less than 50 percent of its gross receipts for the same calendar quarter in 2019.

If the gross receipts decline to that extent, the employer also must later determine if there is a later calendar quarter in 2020 in which the employer’s 2020 quarterly gross receipts are greater than 80 percent of its gross receipts for the same calendar quarter in 2019.

If so, the significant decline in gross receipts ends with the first calendar quarter that follows the first calendar quarter in which the employer’s 2020 quarterly gross receipts are greater than 80 percent of its gross receipts for the same calendar quarter in 2019, or with the first calendar quarter of 2021.”

Let’s put the gross receipts test into practice:

For a healthcare facility that made $80,000 in gross receipts in 2019, then made $60,000 in 2020, the decreased amount would be $20,000. If you divide that by your original $80,000 number from 2019, you’ll get 0.25, or a 25% decrease. That’s your drop in gross receipts.

It’s important to note that the CARES Act does not require that the significant decline in gross receipts be related directly to COVID-19. Employers should still keep records for 2019-2020 to document the decline in gross receipts. These records should be available for IRS review for at least four years.

Step 2: Calculate qualified wages for the Employee Retention Credit

What are the qualified wage limits for earning the Employee Retention Credit?

In 2020, you are allowed a maximum credit of $5,000 per employee. In 2021, the rule changed and you are allowed a maximum of $7,000 per employee per quarter in 2021.

“Recovery startup businesses” (businesses that opened their doors during the pandemic) are eligible for the credit but are limited to a $50,000 credit per calendar quarter.

Are tips included in the ERC?

The short answer is yes. Tips can be considered qualified wages for the purposes of the ERC. Just as long as they exceed $20 in one calendar month and can include cash or any other form of payment.

Notice 2021-49 from the IRS clarifies this.

Step 3: Gather required documentation for the Employee Retention Credit application

There are a number of documents required for claiming the ERC.

An experienced ERC company with an independent network of tax professionals can help you through most parts of the process, but you’ll need to revisit your files and find these documents from your previous tax filings:

Required documents:

• Basic company information (business name, address, number of employees, etc.)
• Payroll reports (employee names, dates they were paid, and gross wages)
• PPP loan documents (if applicable) (date of PPP funding, loan amount)
• PPP1 Loan Forgiveness Application (Form 3508)
• PPP2 Loan Forgiveness Application (Form 3508EZ)

Required information:

• Full-time employee information from 2019 (employee name, address of employment, start & end date of employment)
• Monthly group healthcare statement (if applicable)
• A government order to shut down or suspend operations (if applicable)
• Sales revenue from 2019-2020 (ERC calculation from net income or loss and how many full-time employees exist)

Step 4: Prepare the 941-X Form

In order to apply for the ERC, you (or your ERC company) will need to fill out a Form 941-X, which is an “Adjusted Employer’s QUARTERLY Federal Tax Return of Claim for Refund”.

Details included in the 941-X Form:

• Personal information
• Information for the amended return
• Certifications for 941-X Form
• Calculate the ERC refund
• Include explanations for the corrections
• Cannot file online; must be printed and mailed to the IRS

Step 5: Receive the payroll refund!

If the Employee Retention Credit application is approved, you will receive your refund from the US Treasury.

It should be noted that multiple factors can affect the amount of time it takes to start receiving your business’ refund, and checks are issued for each qualifying quarter. Typically, our clients have received their first check in 4-7 months following the submission of a claim to the IRS, with subsequent checks coming after that but the process could take longer due to current IRS delays.

How long is the ERC refund process?

The sooner the IRS has your ERC claim, the faster it can begin processing it.

Getting the refund generally takes  months. That’s why it’s important to make sure your forms are filled out without error. Incomplete or incorrectly filled-out forms will be rejected and may result in your business having to refile.

You should be apprised that the IRS is reporting delays in delivering the funds. This means this process could take longer than the typical 4-7 months; approximately 5-8 is our current estimate.

Once the IRS has your company’s claim, you can check the ERC refund status by calling the IRS at (877) 777-4778. When you call the IRS, make sure to have your Social Security number, employer identification number, and tax return information on hand.

The benefit of partnering with Innovation Refunds

Applying for the ERC can be a daunting task. Take some stress off your plate by partnering with an ERC company like IR.

Our team of independent tax attorneys have helped thousands of businesses claim significant refunds to help recover and thrive.

You can benefit from working with one of our independent tax attorneys who are:

• Knowledgeable about the evolving legislation and regulations around the ERC
• Familiar with the original and amended documents required and the procedures
• Qualified and driven to take action to help your company

We’re powered by a customer-centric mindset, top-of-the-line talent, and experienced leadership. That’s how we’re able to achieve our mission of helping thousands of businesses across the country.

What our clients are saying about working with us:

“Thank goodness we heard about Innovation Refunds and contacted them! COVID hit our company hard, but we kept our employees and struggled through only to leave the company in a financial struggle! Innovation Refunds helped us get the employee taxes we paid into IRS for 6 quarters back and got our company back on its feet strong! Love these guys!”

Google Review, Bonnie James - Owner of Construction Company

“This process was smooth and easy. It was handled with professionalism and any questions were answered right away. Any business owner needs to look into this process.."

Trustpilot, Fred Brantley - Plant Nursey Owner

It’s easy to get started and see if you qualify for ERC assistance. While Innovation Refunds does not provide tax or legal advice, our independent tax attorneys will help determine your business’ eligibility, check for missing documentation, calculate your refund, and submit your claim if you qualify.

Let’s start now. Determine your business’ eligibility today.

*Innovation Refunds works with a team of independent tax professionals. We will share your information with these professionals to evaluate and process your claims. Innovation Refunds does not provide tax or legal advice.  Terms & conditions apply.