While COVID-19 lockdowns have been lifted and restrictions eased since 2020, businesses are still feeling the significant financial impact of the pandemic. With tax season right around the corner, it’s an understandable time to weigh your options and consider what might help relieve the tax burden on your business.
Although the 2020 tax year is behind us, and you likely already filed your tax return in 2021, the government set up the ERC tax credit under the CARES Act to help you amend your 2020 tax return, giving businesses financial relief due to the impact of COVID-19.
Who does the ERC Help?
The ERC tax credit can help businesses within the following industries:
- Government Contractors
- Healthcare and Life Sciences
- Hospitality and Retail
- Professional Services
- Real Estate and Construction
Through the tax credit, businesses from each of these industries can apply with qualified wages paid after March 12, 2020, and before January 1, 2021. This tax credit only applies to businesses with less than 100 employees. Businesses that received a PPP loan forgiveness cannot use the same wages to apply for the ERC tax credit.
In addition to having less than 100 employees, businesses qualify for the ERC tax credit if they fall under one of the following criteria:
- Qualified wages were paid to employees during a full or partial suspension of business operations between March 12, 2020, and January 1, 2021
- Gross receipts declined over 50% when compared to the same fiscal quarter of the year prior (2019)
If you fall under one of these criteria, calculate your ERC amount to determine how much you may receive.
I Already Filed My 2020 Tax Return. What Now?
If you filed your 2020 tax return back in 2021, no problem. That does not mean you will miss out on your ERC tax credit if you qualify. Because you have already filed, you will need to amend your 2020 tax filing. This will allow you to make changes to your 2020 tax return that would impact your ERC tax credit. In most instances, the IRS allows you to amend your tax return 3 years after filing.
The sooner you file your amended tax return for the 2020 tax year, the better. Although the deadline for applying for the ERC tax credit is not until April 15, 2024, you should get your application in as soon as possible.
Delays have plagued the ERC claims status of already-filed applications, causing the average estimated arrival of your claim to be between 6-9 months. However, the number of months you wait is really dependent upon the information presented in your application and when you submitted it. For this reason, having an ERC consultant help you complete and file your application can get you your claim sooner.
Amend Your 2020 Tax Filing
Amending your 2020 tax filing allows you to correct mistakes that you might have made in order to receive the ERC tax credit. You will need to amend your Quarterly Federal Tax Return for each of the quarters you paid qualified wages. To amend your tax filing, it is best to consult with an ERC consulting firm to avoid making any mistakes that could impact your ERC claim. You do not want to be stuck paying penalties to the IRS because of mistakes you made when filing.