How To Apply For The Employee Retention Tax Credit
Need a guide to apply for the Employee Retention Credit? Here's everything you need to know about applying for the ERC stimulus.
The words “employee retention tax credit” might be haunting your dreams, your business websites, or your weirdly targeted podcast ads. While we can’t promise to make it go away, we can absolutely tell you how to apply for employee retention credit (ERC) or ERC stimulus.
In this article, we will walk you through a brief explanation of the ERC, the two options you have for applying for the ERC, if you should hire a professional to help you, and, of course, how to apply for the ERC.
Table of Contents
- What Is The ERC Stimulus?
- Can I Apply For ERC?
- How To Apply For The Employee Retention Credit
- When are ERC Applications Due?
- Is There An ERC Application Form?
- How To Complete The ERC Application In 5 Steps
- The Bottom Line On Applying For The ERC
- ERC Application FAQs
What Is The ERC Stimulus?
The ERC stimulus, or better known as the employee retention tax credit (ERC), was created under the CARES Act in 2020 to incentivize businesses with a refundable tax credit for keeping their staff on payroll during the economic shutdown. This program has since ended, but you can still claim the 2020 ERC until April 15th, 2024, and the 2021 ERC until April 15th, 2025. The ERC can be claimed for wages paid in 2020 can be as high as $5,000 per employee, and the ERC for wages paid in 2021 can be as high as $21,000 per employee.
Find out if you qualify for the ERC and exactly how much you could be getting back with your ERC refund.
Can I Apply For ERC?
Qualifying for the ERC stimulus tax credit requires business owners to meet a long set of qualifications, but the short version is that businesses that weren’t affected by COVID-19 economic shutdowns don’t qualify for this stimulus option.
Find out if you meet the employee retention credit requirements in our full break down of who qualifies for this tax break.
How To Apply For The Employee Retention Credit
Are you a lone wolf in the tax world, or do you need a little extra help? There are two option for how to apply for the ERC credit: do-it-yourself or hire an ERC professional.
ERC Application Option #1: Apply For The ERC Yourself
The first option is to fill out your ERC application yourself in order to claim your ERC refund. The pros and cons of calculating, filing, and applying for the ERC credit without professional help are:
More affordable than hiring a professional
- Free guidance and application checklists available
More room for error
Potentially miscalculating your ERC refund
The IRS has provided Form 941-X, which was modified to specifically allow small business owners to amend their 2020/2021 taxes to claim the ERC credits they qualify for. This is a lengthy process and with the number of changes the ERC went through in 2021 alone, it can be difficult to understand your eligibility and how to calculate your ERC.
Plenty of websites, including the official IRS site, offer guidance and step-by-step checklists for you to follow. You can also find websites offering ERC calculators, but remember that they might not be the most accurate.
ERC Application Option #2: Apply For The ERC Through An ERC Service
While you can file the ERC credit on your own, hiring an accountant or using a trusted ERC funding company can save you time and ensure that everything is done correctly. While there are many pros to using an ERC company to file, there are some cons as well:
- Increased peace of mind
- Higher likelihood of maximizing your refund
Trusting someone else with sensitive tax information
If you choose to hire a professional, there are many different options for assistance. You can either go through a trusted accountant, or you can use a company that specializes in ERC funding to handle calculating your ERC refund and filing your form 941-x for you.
Financial and lending companies such as Lendio offer services to business owners to help them with applying for the ERC with Lendio.
Most companies offering these services have partnered up with a network of professionals who have worked to become experts in the complicated world of ERC claiming. Hiring a professional makes less work for you, gives you access to guidance throughout the entire process, and peace of mind knowing the correct forms are being filed even as qualifications and processes continue to change.
Check out our list of the best ERC companies for more options.
Potential downsides to hiring a professional are fairly obvious but worth consideration. Paying someone else to do something you can technically do yourself might go against your business model or personal preferences. You’re also trusting another person to complete your application with the same care you would. Despite these two relatively mild downsides, when there are potentially thousands of dollars worth of refund credits waiting for you, it might be worth spending the extra money to make sure you don’t miss out because of a mistake on a form.
When are ERC Applications Due?
To apply for the ERC credit for 2020, you have to complete your amended tax return and ERC application by April 15, 2024. To apply for the ERC credit for 2021, you have until April 15, 2025.
Is There An ERC Application Form?
To apply for the ERC tax credit, you’ll need to fill out Form 941-X which can be found via the IRS. You’ll use this form to submit an amended tax return for the year you want to claim the ERC credit for.
How To Complete The ERC Application In 5 Steps
Want to know how to apply for the ERC through a lender or other program? We’ve broken down the general process into five easy-to-understand steps that will get you well on your way to claiming those refund credits in the spring.
Step 1: Determine Your Eligibility For The ERC
First things first, is your business even eligible for the ERC? Below we provide a basic list of eligibility requirements, but you can find a much more in-depth list in our article on how to qualify for the ERC.
Basic eligibility requirements:
- Your business was shut down due to a governmental order during any part of 2020 and/or parts of 2021, the business’s gross receipts in any quarter of 2020 declined 50% or more relative to the same quarter of 2019, and you kept 80% of your employees on your payroll
- You continued to pay wages throughout any shutdowns you experienced
- You are considered a recovery startup business
Some lenders or programs offer questionnaires to help you figure out if your business is eligible for the ERC.
Step 2: Gather Your ERC Application Documentation
When you are preparing to apply for your ERC through a lender or other program, act like you’re filing your taxes for the year and collect the important documents needed.
- 2020 and 2021 tax returns (include previous years as well if you’re filing after 2022)
- 2020 and 2021 payroll records
- 2019-2021 records of profits
- Record of number of full-time and part-time employees in 2019-2021
Step 3: Fill Out Your ERC Application
Now that you’ve determined that you’re eligible and have gathered your important documents, it’s time to complete your ERC refund application! Do your research and read through the terms and conditions your lender/program may have before you decide which professional service you’re going to use.
Make sure you note what documents they need from you, as most companies will need to determine your eligibility independently before they accept any application from you. Give them all information they request, usually general personal and business-related, and attach all documents they need to verify your eligibility.
Once you’re verified, they will begin preparing your 941-X Amended payroll returns. Keep an eye on your email or account so you can get them any other information or documents they may need ASAP to ensure your application process is speedy.
Step 4: Check The Status Of Your ERC Application
As we mentioned above, staying in touch with your lender/program is important throughout the application process to keep everything moving smoothly. Whatever contact information you give them (personal/business cell, landline phone number, and/or email), make sure it is something you access daily. Turn your ringer on and add their number to your contacts to avoid any unintentional missed or blocked calls. Add their email to your contacts as well while you’re at it, and make sure you’re checking it regularly so you can send any additional documents they may require.
Step 5: Receive Your Employee Retention Credit Refund
You did it! As long as your application is approved, the IRS will issue you your credits!
Lendio quotes 2-8 months for the ERC turnaround, but with the influx of applications coming soon and potential staff shortages (not to mention the changing requirements), it might be best to assume it will take closer to 10 months before you see any of those credits.
If you’d rather not wait this long, you can get an advance payment of your ERC funds by applying for an ERC loan. Our list of the best ERC loans is a great place to find a lender and get your ERC funds in weeks instead of months.
The Bottom Line On Applying For The ERC
While the ERC can be daunting, it is a great way to pay yourself back for keeping your employees on payroll during the different economic shutdowns we experienced in 2020 and beyond. Take some of the stress out of a potentially overwhelming process and consider hiring a professional to help you apply for the ERC. Research never hurts; who knows, you could learn that you’re more of an expert than you thought!
Take the information and steps we’ve provided you and start the process of applying for the ERC today! We have several other articles that can help if you have more questions concerning the ERC or want to share the information with your network.
Once you’ve applied for the employee retention tax credit yourself or through a specialist like Omega Accounting, learn how to check the status of your ERC refund and claim the ERC on your taxes.