ERC Finance: The Best-Kept Secret of the CARES Act
Most people know about the Paycheck Protection Program (PPP). It was a loan the government offered to small businesses to help them pay their expenses through the pandemic. But the best-kept secret of the CARES Act (Coronavirus Aid, Relief and Economic Security Act) is a tax credit called the Employee Retention Credit, which is commonly referred to as ERC or ERTC.
Why the ERC isn’t better known is a mystery. Maybe it’s because taxes are not as sexy as loans. After all, most people tend to groan when they see the word “tax.” But in this case business owners have very good reasons to not tune out. Those reasons involve putting money in your bank account.
Even so, we know how confusing taxes can be, even when it means putting more money in your bank account. The IRS is careful about giving away money. That carefulness comes in the form of piles of paperwork most of us can’t even begin to understand, but we’re here to help. In this article, we’re going to break down:
- what the ERC is,
- how the ERC works, and
- how you can use the ERC to increase your company’s cash flow.
By the time you’re done reading this article, you should have a solid understanding of whether you qualify for an ERC payment, and if so, how to apply to get your money.
Do you know about the best-kept secret of the CARES (Coronavirus Aid, Relief and Economic Security) Act? This secret is a tax credit called the Employee Retention Credit, which is commonly referred to as ERC or ERTC. Does your business qualify? Read on for more information.
How the Employee Retention Refund Works
Before you can use the ERC (Employee Retention Credit) to fund your business, you need to understand how it works. The Employee Retention Credit is a tax refund employers can claim against employment taxes they paid during the pandemic. A tax credit means you pay less in taxes than you would without the credit. In this case, you’ll pay less in your employment taxes.
The great thing about the Employee Retention Credit is that it works retroactively, meaning you can apply for a refund on taxes you already paid. Once that gets approved, the IRS will send you a check to refund you the amount you overpaid on your taxes.
There’s no catch. You don’t have to spend the money on hiring more staff. You can choose to spend it on hiring more staff. Or you can choose to spend it on new equipment. Put it aside for a rainy day. It’s your money that the government is giving back to you. Spend it any way you want.
See why we said business owners have a good reason not to tune out when it comes to the Employee Retention Credit? Now that we have your attention, let’s talk about how you can get your money.
How Do I Calculate My Eligibility for the Employee Retention Credit?
If the Employee Retention Credit sounds too good to be true, that’s because it is … for some people. Not all employers qualify for the credit. So, if you want to apply for the Employee Retention Credit, you first have to see if you qualify.
Determining whether you qualify for the ERC comes down to one or both of the following:
- whether your business was fully or partially shut down by government order due to the COVID-19 pandemic; and
- whether the total income for your business for the quarter in which you are applying for ERC finance is below the same quarter in 2019
The amount of money you can claim through ERC finance is half of your relevant employment expenses. The limit on how much you can claim is $26,000 per employee in 2020, and $21,000 per employee in 2021.
What could your business do with an extra $26,000 for each of your staff members?
What Is the Deadline to Apply for the Employee Retention Credit?
As exciting as this deal is, it is a limited-time offer. If there’s anything people hate more than taxes, it’s deadlines, making tax deadlines the worst of both worlds. But, like we said, this is about putting money back in your bank account, so you’ll want to pay attention to these deadlines.
If you qualify for ERC finance, you have until April 15, 2024, to apply to have an Employee Retention Credit applied to your 2020 employment taxes. The deadline to apply for ERC finance for your 2021 payroll taxes is April 15th, 2025.
How Do I Apply for an ERC Payment?
Did you figure out that you qualify for an ERC refund? And you still have time to kill before the deadlines? Congratulations! But you’re not done yet. Now you have to send in your application to the IRS.
Applicants for ERC payment need to fill out an amended Form 941X (Quarterly Federal Payroll Tax Return) for the relevant quarters. Once the IRS accepts your application, they’ll send you a check for your Employee Retention Credit.
Most employers have had to wait an average of about 9 months (some as long as 18 months!) before receiving their ERC payment. Want to know how you can get your ERC payment today without the wait? You can find out more about our unique ERC purchase program HERE.
View the IRS tax code HERE.
All content and information in this post is for informational and educational purposes only, it does not constitute professional advice.
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