The employee retention credit (ERC) has been a valuable tool for businesses during the COVID-19 pandemic, providing financial relief to companies that have been affected by the economic downturn. The ERC was initially established as part of the CARES Act in 2020 and has since been extended and expanded through various pieces of legislation, including the American Rescue Plan Act.
One of the most significant changes to the ERC is the ability for businesses to receive an advance refund of the credit. This means that eligible employers can receive the funds without having to wait to claim the credit on their tax return. However, many businesses are left wondering when they can expect to receive this money.
The timing of the ERC refund depends on a few key factors. First and foremost, it’s important to understand that not all businesses are eligible for the advance refund. To qualify, a business must have experienced a significant decline in gross receipts or have been subject to a full or partial suspension of operations due to a government order related to COVID-19.
Additionally, the timing of the ERC refund also depends on when the employer filed their quarterly employment tax returns. The IRS has stated that they will issue the refund within 60 days of the date the employment tax return was filed or deemed filed, whichever is later.
For example, if a business files their quarterly Form 941 employment tax return on April 30th, 2021, and is eligible for the ERC advance refund, they can expect to receive the funds by the end of June. It’s important for businesses to ensure that they have filed all necessary tax returns and provided accurate information in order to receive the refund in a timely manner.
If a business does not receive the advance refund within the 60-day timeframe, they should reach out to the IRS for assistance. The IRS has established a dedicated phone line for ERC inquiries, and businesses can also reach out to their tax professionals for guidance.
It’s also important to note that the ERC refund is considered taxable income, and businesses will need to report it on their income tax return for the year in which they receive the funds. Additionally, businesses that receive the advance refund will not be able to claim the credit on their quarterly employment tax returns for the same wages.
Overall, the ERC advance refund has been a valuable lifeline for businesses struggling during the pandemic. By understanding the eligibility requirements and the timeline for receiving the funds, businesses can effectively navigate the process and ensure they receive the financial relief they are entitled to.