Introduced through the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Employee Retention Tax Credit was established to encourage eligible employers to keep their employees on the payroll during the COVID-19 outbreak. It’s a refundable and non-refundable tax credit that businesses can claim on qualified wages, including some health insurance costs, paid to employees.

Under the CARES Act of 2020, businesses may be eligible for the ERC if they had employees and operated a trade or business, which includes tax-exempt organizations. However, with limited exceptions, it does not apply to governments or their agencies and instrumentalities. A small eligible employer for 2020 is an employer that had 100 or fewer full-time (30 hours per week or more) employees on average per month in 2019, and for 2021 had 500 or fewer full-time employees on average per month in 2019.

Your business may be eligible for the ERC if its operations were fully or partially suspended by governmental COVID-19 orders limiting commerce, travel or group meetings or experienced a significant decline in gross receipts during 2020 or the first three quarters of 2021. If your business started to operate on or after February 15, 2020, it may qualify to claim the ERC for the third or fourth quarters of 2021 as a recovery startup business.

According to Section 4980H of the Internal Revenue Code, an FTE is someone who works an average of at least 30 hours per week or 130 hours per month.

Although the ERC program has already ended, an eligible employer still has time to claim the Employee Retention Credit by filing a Form 941X for relevant quarters. For all four quarters in 2020, the deadline to apply is April 15, 2024; for all quarters in 2021, the deadline is April 15, 2025.

Eligible businesses can retroactively claim the ERC for 2020 and 2021 by filing IRS Form 941-X to amend their filed returns (Form 941) for the quarters during which your business was an eligible employer. It is important to ensure that your Forms 941 for 2020 and 2021 were filed, received, and processed by the IRS prior to filing Form 941X. Unlike Forms 941, Forms 941X cannot be filed electronically. Before you claim the credit, make sure you’re equipped with the following information:

- Payroll data
- Personal information (including Employer Identification Number)
- Prior years’ tax returns
- Copies of Form 941 filed for each quarter you plan to claim the ERC

At Stenson Tamaddon, our proprietary technology enables us to prioritize compliance to help you maximize the amount of your business’s credit — all while minimizing risk. We understand that filing for an Employee Retention Credit can be a daunting task.

By filing with us, though, you can rest easy knowing that your information will be handled with care and strict compliance. We pride ourselves in helping small businesses reach their full potential. Let us help you navigate the qualification process transparently and efficiently.