Whether you’ve already received your ERC refund or are still considering if your business is eligible, it is crucial to be aware of every step of the filing process. The Employee Retention Credit has served as a crucial lifeline for tens of thousands of businesses across the country after suffering unprecedented challenges during the COVID-19 pandemic.
But many business owners are not aware that the ERC filing process doesn’t end once the ERC check arrives in the mail. In fact, skipping the next steps, per the IRS, could put your business at risk of penalties down the road.
How to File Your ERC Refund
The ERC refund was introduced as a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. The program intended to offer much-needed economic relief to business owners impacted by the global pandemic.
Employers must meet one of the following two qualifications during an eligible quarter to be considered qualified for the ERC:
- Experienced a significant decline in gross receipts
- Fully or partially suspended due to governmental mandates
After reviewing the ERC qualifications and determining that your business may be eligible for the payroll tax credit, you must submit Form 941-X for the eligible quarters in 2020 and 2021 to the IRS. This form allows you to adjust your previously submitted quarterly tax return and claim the ERC refund.
This form allows you to adjust your previously submitted quarterly tax return and claim the ERC refund.
How Much Longer Can You File for the ERC?
Even though the ERC program expired in September 2021, qualified businesses can still submit 941-X and retroactively receive the ERC refund. According to the IRS, “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.” Therefore, 941-X for eligible quarters in 2020 must be submitted to the Internal Revenue Service by April 15, 2024. Similarly, the deadline to claim ERC funds for eligible quarters in 2021 is April 15, 2025.
Next Steps After You Received Your ERC Refund
ERC refunds are taking anywhere from 4-12 months to land in employers’ mailboxes and many of these business owners don’t realize that there are additional steps that need to be taken after the checks arrive in the mail. The IRS guidelines surrounding the ERC program state that amending your business’s returns, and possibly your individual ones, must be filed as soon as possible after receiving your ERC refund. Otherwise, your business could be at risk of paying penalties.
How Might the ERC Refund Impact Your Personal Return?
Your personal returns will need to be amended if your business operates as a corporation, more specifically as an S-Corp, Partnership, LLC, or Sole Proprietor. Ultimately, the ERC refund will impact the personal returns of:
- All S-Corp members
- All partners in a partnership
- All members of an LLC
- Sole proprietors
How Might the ERC Refund Impact Your State Return?
After your federal amendments are accepted, you may also need to amend your state income tax returns. Depending on your state’s requirements, the ERC refund may reduce the amount of wages deducted from your taxable income. This could result in an increased amount of state-taxable income.
Conclusion and Next Steps
Finding a trusted partner who fully understands the ERC program and is committed to helping your business can help the process be less overwhelming.
StenTam takes a proactive and compliance-first approach to tax planning. Our technology-enabled tax solutions provide accurate, compliant, and hassle-free tax filings that can give you peace of mind.
Reach out to one of our team members today to learn more about amending your federal, state, and personal returns after receiving your ERC refund.