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Overview of Employee Retention Credit
The Employee Retention Credit (ERC) was created by the CARES Act as an incentive for employers to retain employees and provide employee wages during the Coronavirus pandemic. It is a fully refundable tax credit of up to $5,000 per eligible employee.
As an employer, it is important to understand how long it takes to receive the ERC refund and what other considerations need to be taken into account:
Eligibility Requirements
Businesses that have been affected by COVID-19 may be eligible for the Employee Retention Credit (ERC), a refundable tax credit available to employers that kept employees on their payroll despite experiencing economic hardship related to the pandemic. To qualify, employers typically must meet certain criteria related to business size and income, employee wages and health plan expenses.
The size of the employer’s business is an important factor in determining eligibility for ERC. Employers with fewer than 100 full-time employees can take advantage of ERC if they meet income qualifications, while those with more than 100 full-time employees must also satisfy wage criteria. In addition, nonexempt organizations are not eligible for this credit regardless of their workforce size.
For businesses with 100 or fewer full-time employees, the amount of ERC allowed is based upon their average number of employees and annual gross receipts from 2019 or 2020. For businesses with more than 100 full-time employees, a portion of the wages paid during that period can count toward qualifying for the credit. The maximum tax credit allowed per quarter is $5,000 per employee and $7,000 per employee if there has been further disruption due to government closures or operations restrictions due to COVID-19 during 2021.
Qualifying wages paid between March 13th 2020 and December 31st 2021 are eligible for reimbursement through this program, so employers should make sure they track pay dates in order to take advantage of it quickly and efficiently when filing their taxes. Additionally, employers need to keep documentation that verifies compliance with all program guidelines since they could be subject to IRS review at any time prior or after submitting returns claiming ERC credits.
Calculating Your Credit
In order to calculate whether you qualify for the credit and determine how much you may receive, it is best to use the Employee Retention Credit Calculator tool provided by the Internal Revenue Service (IRS). To use the calculator, input the relevant information regarding your business’s gross receipt reduction, payouts in qualified wages and other data so that it can be accurately calculated.
The calculator itself will provide an estimated Employee Retention Credit amount which you are eligible to receive. If a refund was requested along with income tax returns prior to March 12th of 2021, then there is no action necessary on your part. Your refund will be automatically applied as soon as it has been processed by the IRS.
However, if Form 7200 was used at any point after March 12th or if no return or refund was requested prior to that date, then an amended return must be submitted in order to claim your credit amount owed. The amended returns form may be submitted online through a secure portal provided by your tax professional or you may mail your completed forms directly to the IRS address enclosed at the end of this guide.
Once all of your information has been successfully submitted and processed by the IRS you should expect a notice regarding how much of a refund is owed either within two weeks or closer to four weeks depending on how many applications they received during peak season times.
How to Claim the Credit
The Employee Retention Credit (ERC) was introduced in 2020 to help businesses affected by the COVID-19 pandemic. The ERC provides businesses with a refundable tax credit for wages paid to employees. To claim the credit, businesses must file Form 941 or Form 944 and select the “Employee Retention Credit” box. They must also provide information on employees and wages, as well as the total qualified wages.
In this article, we will discuss
- how to claim the Employee Retention Credit
- how long it takes to receive a refund.
Filing for the Credit
Filing for the tax credit requires you to provide proof of your expenses and income to the Internal Revenue Service (IRS). This may include pay stubs, receipts, bank statements and other documents. Once you’ve compiled all of your documentation, you can fill out a Form 1040 that covers all the required information.
You’ll need to include details about your filing status (single or married filing jointly) and how much money you made over the course of the year. You’ll also need to include information about any deductions or credits that apply to your situation. The IRS expects complete and accurate information, so be sure to double-check everything before submitting your form.
After you file for the credit, it usually takes around three weeks for it to be processed. If everything is in order, you should receive a refund check within that timeframe. If not, then it may take longer as the IRS will likely require additional documentation before approving your claim.
Documentation Required
The IRS requires that employers who are claiming the Employee Retention Credit (ERC) provide paperwork documenting their efforts to retain employees and remain open for business. This documentation should include records of eligibility, wages paid, and applicable unemployment contributions.
Businesses may also be required to provide proof that they have taken reasonable steps to ensure they remain open amid the pandemic. Along with this documentation, employers must provide evidence that their businesses have been either fully or partially suspended as a result of the COVID-19 health crisis or that gross receipts declined by more than 20%.
It is important for employers to keep accurate records and documentation supporting their claim for credit. Documentation should include wage statements and payroll tax reports filed with the IRS: Form W-2s, Wage & Tax Statement / 941 Forms (Employer’s Quarterly Federal Tax Return), as well as proof of unemployment contribution payments made in connection with employees who qualify for ERC benefits.
Finally, businesses must maintain contact information for employees including copies of documents such as driver’s licenses used when hiring employees in order to verify citizen status under Section 32 of the Internal Revenue Code. This requirement applies even if those workers did not receive ERC qualifying wages during 2020 due to layoffs or discharge.
How Long Does It Take to Receive Your Refund?
Navigating the Employee Retention Credit refund process can seem daunting and confusing, but it doesn’t have to be. Knowing how long you can expect to wait for a refund can be helpful in managing expectations and planning for the future. So, how long does it take to receive your refund? Let’s take a look.
Processing Times
Many taxpayers assume that the process of getting a refund is simple and swift, however, processing times for refunds vary depending on the factors that can be out of your control. When filing your taxes, you will usually receive your refund within 21 days from when the IRS receives your return. However, this average time frame is also impacted by how you file and how you choose to receive your money. It is important to understand some of the common delays in order to plan and prepare accordingly.
Filing Format: If you are filing a paper return rather than an e-file, it can add several weeks to the processing waiting period due to the sheer volume of paperwork that must be processed by hand. Additionally, filing an amended return or corrections manually will add more time than electronically due to extra steps in validating your eligibility for changes or updated information.
Payment Method: If you choose to get your refund via direct deposit instead of paper check, you should expect much shorter processing times since most refunds are issued through ACH within two weeks from when the IRS receives your return or earlier if there were no errors with verifying submitted information. On the other hand, having a paper check mailed may take several additional weeks for a refund as postal delivery service experiences seasonal delays during high tax seasons.
It’s important to understand any factors that can affect receiving back your taxes as soon as possible so that expectant taxpayers are fully aware of potential delays related to their filing process before committing themselves down one route or another.
Common Delays
When it comes to refunds from the IRS, taxpayers may experience several common delays that can slow down the return of their funds. Some keys factors that can lead to processing backlogs include:
- Incorrect information on forms – It is important for taxpayers to double-check all forms are accurate and complete before submitting them. If a form contains mistakes, it may be delayed in processing or rejected altogether requiring a complete resubmission.
- Unfilled Required Business Information – Taxpayers who receive refunds associated with business or rental income should ensure they have completed the appropriate information regarding their line of work when filing returns in order to properly process their claim.
- Earned Income Tax Credit or Additional Child Refund – Claims involving credits such as Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) require additional screening as specified by a 2000 federal law mandating more thorough reviews for these types of refund claims. This additional step in the review process can cause some delays in receiving funds for those who qualify for these credits.
- Large Volume of Requests – During peak filing season, the IRS might experience an influx of claims resulting in processing delays due to sheer volume received within any given period.
What To Do If Your Refund Is Delayed
If you have been waiting for your Employee Retention Credit refund and it is taking longer than usual to receive, there are a few steps you can take. It’s important to understand that it can take up to two months for the IRS to process your refund, but there are ways to check the status of your refund and contact the IRS if you suspect there is a problem.
Let’s discuss what options you have if your refund is taking longer than expected:
Contact the IRS
If you discover your refund has been delayed, it’s important to contact the IRS as soon as possible. Generally, you can get in touch with them through their website or by calling their toll-free number. When you reach out, have ready any information related to the claim (including your withheld W-2 forms), as well as a detailed timeline of events leading up to the delay in receipt of funds.
The IRS representative will typically investigate your case and provide you with advice on how to proceed. They may ask that additional documentation be submitted before they are able to resolve the issue and will likely not inform you of any action being taken until after the investigation is complete.
Furthermore, if it turns out that there was an error handling your refund claim on behalf of the IRS, they’ll be willing to expedite the process for you. Be sure to provide as much detail and evidence as possible during all communications in order for them to make a determination regarding whether or not this is an appropriate solution for your claim.
Check Your Status Online
If your refund has been delayed, you can easily check its status online. All you need is the confirmation number associated with your filing. You can typically find this at the top corner of any correspondence from the IRS regarding your refund.
To view the status of your refund online, navigate to IRS.gov and enter ‘Where’s My Refund?’ in the Search Box. From there, you will be able to see a summary of where things are in the process and other details associated with your refund request. You may also set up notification to let you know when the status changes on your refund request along with when it should arrive in the mail or be deposited into a bank account if you have opted for direct deposit.
If after checking your status online and entering all relevant information, you still have not been able to locate any details about your return, you may call:
- 1-800-829-1040 (individuals)
- 1-800-829-4933 (businesses)
An agent at these respective hotlines will be able to help narrow down what is causing delay in processing or delivering your return.
Tips for Avoiding Delays
When businesses are eligible to receive the employee retention credit (ERC), they may experience delays in the receipt of those funds due to the timeframe it takes the IRS to process and issue refunds. By following some simple steps, businesses can avoid delays and ensure their ERC refund arrives in a timely manner.
Let’s look at some tips to help you receive your ERC refund without any delays:
Ensure Your Documentation is Complete
It is important to fill out all required forms and provide the necessary documentation in order to ensure that your refund request is processed quickly and accurately. Make sure the Employer Retention Credit Form 5584 that you submit includes all employee classifications (full-time, part-time, seasonal and/or on-call) that you wish to claim.
Documentation should include payroll tax returns and quarterly unemployment insurance wage report filings, payroll registers or files from your payroll processor, or other records of wages paid. If a data source does not provide total wages for each employee classification reported, please include alternative documents such as pay statements from 2019 or earlier that show the wages for each employment classification reported. All documents should be clearly labeled with a description of the type of wages being claimed for the ERTC refund request.
Additionally, confirmations of claims filed with state unemployment insurance agencies may also need to be included and submitted with Form 5584 in order to complete your ERTC claim request.
Double-Check Your Filing
To help ensure your company receives its Employee Retention Credit (ERC) refund in a timely manner, it is important to double-check your filing and make sure all the information is accurate. When submitting an ERC claim, you should provide proof of qualifying wages, specifically a Department of Labor wage report (Form 941) and third-party payroll reports generated by payroll providers or your accounting department. You should also include any other related documents such as documents to prove the business has been in operation since before February 15, 2020.
It is also essential for businesses to be mindful of deadlines for filing amended returns to avoid penalties and delays and ensure that additional amounts are taken into account before filing. All the relevant information regarding any claims and refunds must be accurately recorded in order for a company to receive their desired amount back from their ERC refund quickly.
If you are ever unsure about an aspect of the ERC refund process or have questions about what documents need to be completed correctly before filing, it is best practice to seek advice from qualified tax professionals who specialize in this area of taxation law. Doing so will help you stay on top of changes and updates related to this process as well as provide guidance if any issues arise during the review process with the IRS.
By carefully double-checking all information included with an ERC claim or refund request, businesses can minimize possible delays and maximize their chances of receiving a prompt return on investment associated with this important credit program.