How To Report Employee Retention Credit On A Tax Return

The Complete Guide claiming The Employee Retention Credit on your Tax Return

With the recession looming over the nation, businesses are looking for ways to save a bit of cash. If you’re in the process of filing your tax return, now’s your chance. It all starts with being familiar with all the tax credits you’re eligible for - including the Employee Retention Tax Credit.

It may be just what you need to drastically reduce your tax burden, especially if you were in any way affected by the COVID-19 pandemic. 

Now, we know what you might be thinking: is this credit still available for businesses considering the events in question happened a few years ago, are you eligible, and how to file an employee retention credit tax return?

Keep on reading and it will all make sense.

What is the Employee Retention Credit?

As the name suggests, the Employee Retention Tax Credit is a refundable tax credit for any qualified wages paid to your employees in the period between March 2020 and January 2021. It applies to employment taxes such as federal income tax withholding (Medicare, FICA).

It was created to reward businesses that kept employees on the payroll even if they didn’t work due to lockdowns. For 2021, qualified business owners can claim a credit of up to 70% for each qualified wage they paid out, with a maximum of $7k per quarter, per employee. Furthermore, the amounts for the 2020 tax year are 50% and $5k, respectively. 

You can look at the Employee Retention Credit as a grant that allows you to recover $26k per employee if you’re entitled to it. Naturally, the amount on your return will be dependent on the wages, healthcare expenses, and other costs incurred during the eligibility period. 

Can You Claim Employee Retention Credit in 2023?

Fortunately, you can still claim the Employee Retention Tax Credit. Small business owners can retroactively claim it on their return and receive a refund check. We’ll go over how to file an employee retention credit tax return shortly, but first, you need to be aware of the deadlines.

For 2020, the deadline for claiming your credit is April 15, 2024, while returns for 2021 can be claimed until April 15, 2025. 

Are You Eligible For Employee Retention Credit?

If your business was in operation during 2020 or 2021, there’s a high chance you are eligible to claim the Employee Retention Tax Credit. However, there are two important factors to consider:

First, your business must have been affected by a government order and you had to shut down your operations completely or partially. Second, your business must have been financially affected by lockdowns, in other words, you suffered a massive reduction in gross receipts.

Both large and small businesses are allowed for this credit, but there’s an important distinction - organizations with 500 or fewer employees will receive a higher amount of money from the IRS.

Moreover, the credit is also available to nonprofit organizations and government entities such as federal credit unions or public universities. 

How To File An Employee Retention Credit Tax Return

If your business is eligible, you have ample time to claim this credit on your taxes. The process is relatively straightforward and you’ll be required to file an amended return. Just follow the next few steps and you’ll be fine:

1. Gather The Necessary Documentation

Just as with any other tax-related matter, you’ll first need to prepare the obligatory documentation. 

To file for the Employee Retention Tax Credit, you’ll need the following:

• Personal information such as trade name and your EIN
• Payroll records
• Required forms (more precisely, IRS Form 941) that you’ll need to complete for each quarter you qualify for the credit
• Tax return from the previous year
• Copies of Form 941-X you can use to file amended returns

2. Calculate Your Credit

With all the requisite information in tow, you have everything you need to calculate the credit. Although this can be challenging, you’ll be fine if you pay close attention to all the numbers. 

For 2020, the qualified wages must have been paid out between March 13, 2020, and December 31st of the same year. For this period, you can claim 50% of the wages or up to $10k per employee.

To illustrate - if you paid $400k for 17 full-time equivalent (FTE) employees, you can claim $170k.

In regards to 2021, the eligible wages must have been paid between January 1st and September 30th of the same year. This doesn’t apply to recovery startup businesses which have an extended eligibility period ending on December 31st. 

For this year, you can claim 70% of qualified wages, so if you paid $950k to 23 FTE, you can claim $230k.

3. Fill Out The Mandatory Forms

As stated previously, you can get this credit by filing an amended tax return retroactively by using Form 941-X. Fill out all the compulsory information and enter your calculations. Upon completing the form, you must submit it to the IRS via mail. 

It’s worth noting that you’ll require separate forms for each quarter for which you’re claiming the credit. For instance, if you are eligible for the Employee Retention Credit for Q1 and Q2 of 2021, you must submit separate forms. 

4. Wait For Your Refund

Once the IRS receives your forms, they’ll begin processing your returns. This may take a while, and many businesses report it took up to a year to receive a refund. After getting processed, your check will be mailed to the address you provided. 

If the processing goes on for over a year, feel free to contact the IRS directly by phone and they’ll be able to help you.

Get Your Taxes In Order With Style 

The Employee Retention Tax Credit is something you’re entitled to. Don’t look at it like a handout - you are a taxpayer, which means your business does its part in fueling the economy. 

Similarly, this credit is not the only way to minimize expenses as there is a multitude of other deductions you may be entitled to that can save you hefty amounts. It’s worth noting that there are many provisions and rules you have to follow, so to get the maximum benefits of different IRS deductions (without making any mistakes), be sure to reach out to Jostock & Jostock. 

We’re situated in Naples, Florida, and we’ve been helping small businesses and corporations with their tax-related concerns for over six decades!

Fill out a quick contact form or reach us by calling (239) 500-8822 and we can help your business too.

Note: 

The information in this blog post is for reference only and not legal advice. As such, you should not make legal decisions based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.