Understanding the employee retention credit Timeline: A Comprehensive Guide for Employers
The employee retention credit (ERC) has been a lifeline for many employers during these challenging times. This tax credit, introduced as a part of the CARES Act in 2020, is aimed at encouraging businesses to retain their employees and keep them on the payroll.
However, navigating the ERC timeline and understanding the various deadlines can be overwhelming for employers. In this comprehensive guide, we will break down the ERC timeline into manageable steps, making it easier for employers to understand and take advantage of this credit.
Eligibility Period:
The first step in understanding the ERC timeline is determining your eligibility period. Initially, the ERC was available only for qualified wages paid between March 13, 2020, and December 31, 2020. However, due to the COVID-19 relief legislation, the eligibility period has been extended. For the first two quarters of 2021, the ERC is applicable to qualifying wages paid between January 1 and June 30, 2021.
Claiming the credit:
To claim the ERC, employers need to file Form 941, the employer’s quarterly federal tax return. If you are an eligible employer who retained employees during the qualifying period, you can claim the credit against your employment taxes.
To claim the credit for the 2020 eligibility period, you can file an amended Form 941-X, adjusted employer’s quarterly federal tax return, for each quarter you wish to claim the ERC.
Deadline for Filing:
It is crucial for employers to understand the deadline for filing their claims to ensure they receive the ERC. The timeline for filing varies depending on the eligibility period.
For the 2020 eligibility period, the general deadline to file the Form 941-X is within three years from the date the original Form 941 was filed or two years from the date the employment tax was paid, whichever is later. Employers can file amended forms to claim the ERC retroactively for each quarter, even if they have already filed their annual tax return.
For the first and second quarters of 2021, employers can claim the ERC on their regular Form 941 filing. The deadline for filing the Form 941 is the last day of the month following the end of the quarter. For example, the deadline for the first quarter of 2021 is April 30, 2021.
Impact on Other Relief Programs:
It is important to understand that claiming the ERC may impact other COVID-19 relief programs such as the Paycheck Protection Program (PPP).
Initially, employers were not allowed to claim the ERC if they received a PPP loan. However, the legislation has now changed, and eligible employers can claim the ERC even if they have received a PPP loan, as long as the expenses used for both programs do not overlap.
To avoid any complications and maximize the benefits, employers should consult with their tax advisors and accountants to understand the implications of claiming the ERC in conjunction with other relief programs.
The employee retention credit has provided a much-needed lifeline for employers during these challenging times. Understanding the ERC timeline is essential for employers to take full advantage of this credit and ensure they receive the benefits they are entitled to.
By closely following the eligibility periods, understanding the filing deadlines, and seeking professional advice when needed, employers can successfully navigate the ERC timeline and secure the financial relief the credit offers.