Employee Retention Credit Deadline and ERC Updates

Worry not, there’s still time in 2023 to meet the initial deadline for Employee Retention Tax Credit refunds, but don’t delay any further. Our tax attorneys recommend filing qualified wages for Q4 in 2020 to reach your maximum credit of $5k per employee, while 2021 claims in 2021 of $7,000 per employee / per quarter have an ERC deadline that can extend well into 2024.

Real Deadline

Since there has been no official IRS notice on the ERC application deadline, tax attorneys have been hotly debating tax code wording to figure out the actual filing deadline. The only word from the Internal Revenue Service was a stipulation that amended payroll tax returns (Form 941-x), must be submitted within three years.

Quarterly Deadline

For some, the ERTC filing deadline is simply three years from the date they filed their Form 941 for each quarter. This would make the 2020 quarterly filing dates to be 365 days from when you submitted your Employer’s Quarterly Federal Tax Return:

• 2nd Quarter: July 1 to July 31, 2023
• 3rd Quarter: October 1 to October 31, 2023
• 4th Quarter: January 1 to January 31, 2024

Since the ERC maximum credit for 2020 is $5,000 per employee, we recommend you calculate the applicable employment taxes paid in Q4 first to maximize your chances of the deadline being in 2024.

Annual Deadline

While we recommend you file form 941 amendments, as early as possible, there is another school of thought that believes the ERTC tax credit deadline is three years from April 15th of the following tax year.

• All 2020 Quarters: April 15, 2024
• All 2021 Quarters: April 15, 2025

This assumption is based on the following wording from the Form 941-x Instructions page on the IRS website:

For purposes of the period of limitations, Forms 941 for a calendar year are considered filed on April 15 of the succeeding year if filed before that date.

While this may or may not be true, the IRS has still not provided an official deadline for employee retention credit claims. If you decide to wait, you may or may not find the IRS rejecting your claim for not filing on time.

2023 Deadline

One date that is never mentioned in regard to the employee retention credit filing deadline is today!

Employers who are not leaving the real ERTC application deadline to chance are still having to wait 6-9 months to get their refund check. For larger refunds above $250,000 to several million dollars, this wait can be 9-15 months.

Advance Payment

While tax attorneys might hotly debate the ERTC credit deadline, companies offering employee retention credit advances are unlikely to take on the risk of vague IRS wording.

Unless the IRS confirms specific deadlines for each year, expect ERC advance companies to stick with the separate quarter filing dates listed above. If you want a quick payout of this fully refundable tax credit, then be sure you file as quickly as humanly possible, so no one says no to your advance payment request.

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ERC Updates

The ERC today has gone through many changes since it was first introduced in the CARES Act of 2020. While an official deadline for an ERC credit claim was never written into law, certain qualification factors for eligible businesses have been updated and refined over time.

• Further clarity on full or partial shutdown order requirements and the Shuttered Venue Operators Grant
• Definition of a significant decline in gross receipts (50% in 2021, 20% in 2021) compared to the same calendar quarter in 2019
• Small businesses changing from 100 or fewer full-time employees (2020) to 500 or fewer employees in 2021
• Medicare tax and qualified health care expenses being swapped in 2020 and 2021
• After-tax amounts changing up qualified wages paid to employees for each corresponding quarter (i.e. PPP loan forgiveness, owner wages)
• Refund inclusion for a tax-exempt organization, church, or medical school

CARES ACT

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) signed the Employee Retention Credit (ERC) into law in March 2020. The refundable tax credit was designed to encourage employers who kept their employees on the payroll despite the economic implication of the pandemic.

Generally, the ERTC permits employers to claim a 50% credit on employee-qualified wages paid from March 13, 2020, to December 31, 2020. The ERC-qualified wages include the employer’s portion of medical care costs.

$10,000 is the maximum eligible wage per employee. This results in a $5,000 full annual credit per employee. An employer must meet the following eligibility criteria to qualify for the credit.

The employer’s business or trade must be operational during the calendar year 2020, and the running of the company must experience either:

1. Full or partial suspension during the Covid-19 pandemic as a result of governmental orders limiting commerce, travel, or group meetings; Or
2. A gross receipts decline of 50% in a calendar quarter compared to the same quarter’s gross receipts in the previous year. This period spans all quarters in the 2020 calendar year in which gross receipts are more than 80% of the gross receipts of the same 2019 calendar quarter.

If a business has over 100 full-time employees, the employer can only claim the credit on wages paid to employees who weren’t working. If the employer has 100 or fewer full-time employees, they can claim the ERC for all employee wages. The limitation of 100 employees is grounded on the average number of employees in 2019.

Consolidated Appropriations Act

As a result of the CAA, the ERC for wages paid was extended from January 1, 2021, to June 30, 2021. In addition, the Consolidated Appropriation Act made the following changes to Employee Retention Credit eligibility and limits:

The quarter-over-quarter gross receipts decreased from 50 percent to 20 percent, contrasting the 2021 calendar quarter with the same quarter in 2019. The ERC wage limit increased from $10,000 per year to $10,000 per employee per quarter.

An increase of the large employer full-time employee from 100 to 500. The ERC percentage increased from 50% to 70% of gross wages. It also posits that the wages used for the ERC cannot be used for other tax credits, especially the WTOC and R&D.

Certain governmental entities were also included as part of eligible employers. New employers who were non-existent fully or partially in 2019 were allowed to use the 2020 calendar quarter for comparison to determine their decline in gross receipts.

PPP Loans

Based on the provisions of the Consolidated Appropriations Act 2021, any employer who received a Paycheck Protection Program (PPP) loan is now eligible to claim the ERC. This is an opportunity for employers to claim the ERC on 2020 wages. An eligible employer cannot claim the ERC and PPP loan on the same wages.

The rule for ordering is that an employer applies the wages to the ERC before applying it to PPP loan forgiveness. Under an election method determined by the secretary of the Treasury, a PPP borrower might choose not to take wages into account the Employee Retention Credit (ERC)

PPP borrowers, especially those who have filed their PPP loan forgiveness applications, are uncertain and skeptical about this. PPP second draw borrowers will be able to claim the ERC just like the first-time PPP loans.

American Rescue Plan Act

The U.S. president signed the American Rescue Plan Act (ARPA) of 2021 into law on March 11, 2021. The changes made to the credit by the ARPA apply to all wages paid later than June 30, 2021, and before January 1, 2022. In addition, the modifications include increasing the credit for severely financially distressed businesses, designing certain credit standards for specific startup businesses, and lengthening the statute of limitations for assessment under the tax credit.

ERTC Eligibility

ARPA updates indicate that the credit maintains most of the structure for the 2021 ERTC as stipulated by the Consolidated Appropriation Act. Specifically, an employer’s eligibility is uncertain if they experienced a reduction of over 20% of gross receipts in any of the 2021 calendar quarters or were compelled by a governmental order to suspend their business operations fully or partially.

A taxpayer can decide to determine their decline in gross receipts using the previous calendar quarter (i.e., comparing quarter four of 2020 to quarter 4 of 2019 to establish eligibility for quarter one of 2021). The ERTC sums up to 70% credit on eligible wages up to $10,000 per quarter (that is, $7,000 per quarter). The large employer status (500 and above full-time employees) of the taxpayer will determine the eligibility of wages for the credit. For small employers, all wages paid to employees can qualify for credit. Only wages paid to employees who were not working are qualified wages for large employers.

Severely Financially Distressed Employers

The ARPA stipulates more requirements for forgiveness regarding severally financially distressed employers. Starting from the 2021 third quarter, employers who experienced a minimum of 90% decline in their gross receipts compared to the same 2019 quarter may claim the ERTC on all wages paid during those quarters. Severally financially distressed employers are not affected by the limitations for large employers on wages paid to employees who weren’t working.

Recovery Startup Businesses

The recovery startup businesses is an additional benefit added for specific companies. It covers employers who began operations after February 15, 2020, and has up to $1,000,000 in average annual gross receipts. These employers are eligible for $50,000 credit per calendar quarter. A business that falls into the recovery startup business category is not required to meet the gross receipts criteria, nor is it expected to experience a government shutdown as a criterion to claim the credit.

Qualified Wages

According to the ARPA, the wages recorded for the new restaurant revitalizing grant, Family and Medical Leave Act (FMLA), shuttered venues, and Paycheck Protection Program (PPP) do not qualify for wages used in calculating the Employee Retention Tax Credit (ERTC). The ARPA extends a taxpayer’s statute of limitations assessment of whatever amount attributable to the ERTC by five years.

IRS Notice 2021-49

The IRS issued more specifications on the employee’s retention credit on August 4. The guidance includes specifications for employers who pay qualified wages from June 30, 2021, to December 31, 2021. It also has issues with the ERC in both 2020 and 2021.

The ERPA made some changes to the ERC to cover the third and fourth quarters of 2021. The IRS Notice determines whether taxpayers need to file amended payroll tax returns. The changes made to the ERTC by the American Rescue Plan Act for the third and fourth quarters of 2021 are:

• Ensuring the credit is made available to businesses who paid qualified wages between June 30, 2021, and January 1, 2022.
• Including “recovery startup businesses” as a definition of eligible employers.
• Restructuring what qualified wages are for severely financially distressed employers.

The notice also clarifies questions regarding 2020 and 2021 ERC credits that the Treasury Department and IRS didn’t explain. They include:

• The definition of full-time employees and full-time equivalent
• The classification of tips under qualified wages and relationship with the section 45B credit.
• Wages paid to majority owners and spouses
• The scheduling of the qualified wages deduction disallowance and determining if a taxpayer who had filed an income tax return must amend it after claiming the ERC on an adjusted employment tax return.
• Determining if qualified wages can include wages paid to majority owners and their spouses

The employee retention credit (ERC) does not apply to payroll wages linked to §324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. The credit does not also apply to the §5003 restaurant revitalization grants under the ARPA.

The IRS might give an advance payment to the employer if the reduction in the payroll taxes does not cover the credit. File Form 7200, the advance payment of Employer Credits Due to Covid-19, to obtain an advance payment.

All IRS Notice 2021-49 clarifications apply to the total ERTC period. You must file Form 941X for an amendment if your wages were wrongly categorized as qualifying for ERTC.

Infrastructure Investment and Jobs Act

The (IIJA), also called Bipartisan Infrastructure Bill, was approved by the House on November 5, 2021. It speed-up the end of credit retroactively to October 1, 2021, instead of January 1, 2022, except for wages paid by a recovery startup business that maintains the previous expiration date.

This will efficiently lower the maximum credit available to eligible employers to $21,000 from the previous $28,000

Advance Pay

There is guidance in the IRS Notice 2015-65 for employers who received advance payments on how and when they can return the money. The notice also explains how businesses that refused payroll tax deposits while waiting for the credit can avoid being penalized.

In general, employers that received an ERC advance payment for fourth-quarter wages of 2021 and are not recovery startup businesses can escape payment evasion penalties (stipulated in section 6651) provided they repay those amounts on or before their applicable employment tax returns are due.

Employment Tax Deposits

The IRS promised to waive penalties for employers that reduced deposits in expectations of the ERC if the employer:

1. Followed the rules under Notice 2021-24 to claim the anticipated credit;
2. Deposit the amounts they retained for wages paid on December 31, 2021, by the due date, whether or not they pay wages on that date(the deposit schedule of the employer will determine the deposit due date), and
3. Make a report on the tax liability that results from the cancellation of the employer’s employee retention credit on the applicable employment tax return or a schedule that includes the period from October 1, 2021, to December 31, 2021.

Businesses have the grace of December 20 to fulfill the stipulations. Whatever reduction of employment tax deposits made for anticipated employment tax credits after the given date will be subject to IRC 6656 failure-to-deposit penalties.

FAQ

Below you’ll find answers to our most frequently asked questions about the Employee Retention Credit filing deadline, as well as ERTC updates from the CARES Act to the Infrastructure Investment and Jobs Act.