As we have shared in previous correspondence, the new Employee Retention Credit (ERC) creates a nice opportunity to claim a tax benefit for keeping your workers on the payroll during the pandemic.
In order to qualify, your business must have been subject to 1) a government-ordered shutdown or 2) a significant decline in revenue. Because the credit is up to $5,000 per employee, the potential benefit can add up quickly.
You can claim the credit in three different ways:
- On your quarterly (Form 941) or annual (Form 944) payroll tax return,
- On an amended quarterly or annual payroll tax return (if you already filed the original return), or
- On a special IRS form – Form 7200 – designed specifically to claim pandemic-related employer credits.
You may ask for a refund or reduce future tax deposits in order to claim the benefits of the credit. While it may seem enticing to request a big check, you ought to consider applying the credit forward to offset future tax liabilities. Why? While you can electronically file for a refund claim, it is our understanding that the IRS issues these refunds as a paper check. Due to the pandemic, refund claims have been slow to process. We believe you will obtain the benefit quicker by collecting future payroll tax from your workers and reducing the amount you remit to the IRS by the amount of the credit.
If you are amending a prior payroll tax return, give us a call or contact your payroll processor for guidance. The return is not particularly straightforward and, with potentially big dollars at stake, you do not want to make an error. If you have any questions about this or any other COVID-related happenings, please visit the COVID Resources section of our website or give us a call.
Please contact us if you have questions or need assistance.