September 8th 2023.
What is the Employee Retention Tax Credit?
The Employee Retention Tax Credit, also called an Employee Retention Credit, was a tax-savings incentive for businesses to retain employees during the pandemic. It helped companies reduce their payroll costs, and was first enacted under the CARES Act. The Consolidated Appropriations Act and the American Rescue Plan Act later amended the program.
Eligible employers included those that received state or federal government orders for a full or partial shutdown or experienced a decline in gross receipts by 50% or more compared to the same timeframe in 2019. Companies withheld payroll taxes to claim the employer retention tax credit.
The credit was equal to 50% of up to $10,000 in wages paid per employee for all qualifying quarters between March 13, 2020 and December 31, 2020. A qualifying quarter was when there was a decline in gross receipts by 50% or greater during the same quarter in 2019. Total credits could not exceed $10,000 per employee annually.
In 2021, the credit equaled 70% of up to $10,000 in qualifying wages per quarter. This meant businesses could claim up to $7,000 per employee per quarter, which equalled a total of $21,000 per employee annually.
The IRS applied the credit to the employer portion of the employee’s social security tax, which was fully refundable. The credit served as an overpayment and was refunded after subtracting the employer’s share of those taxes.
How long does it take to receive an ERC Refund?
The IRS was already dealing with a backlog of ERTC requests before the slowdown, and it took an average of six months to one year to receive the funds. With the recent slowdown, it looks like business owners can expect to wait well over a year to receive the funds now.
Why is the IRS Slowing Down the ERC process?
The IRS stated it is slowing down the process to combat fraudulent or overstated claims. This means businesses with legitimate claims will have to wait longer to receive their funds. This may leave some scrambling for alternative solutions until those funds come in.
What about Businesses that have already received ERC Funds?
As of March, the IRS had issued over $150 billion in ERTC refunds. The agency is now reviewing approved refunds for errors or fraud. If the IRS finds it issued more than a company was eligible for due to fraud or incorrect filings, the business may have to repay the refund with interest.
How can my Business Claim the ERC?
Businesses can apply for credit on wages during the active period. You can consult your accountant or tax pro on completing forms 941 and 941x, or United Capital Source can help you file for the ERTC with a free consultation.
How can I get my ERTC sooner?
Several lenders and lending marketplaces currently offer ERTC advances. These unique financing options arose because many businesses need or would benefit from the advance sooner than the IRS can issue the funds. The need has become more pressing with the additional delays.
Financing companies offer ERTC advances so you can access and use the funds to support and grow your business. This process is essentially selling ownership of your ERTC in exchange for an advance. When the IRS issues the ERC refund check, it goes to the lender to repay the advance. Some lenders will charge a small monthly interest rate until the check is received, while others might charge a one-time fee.
ERTC Advance Pros & Cons
Here are the benefits and drawbacks of an ERC advance:
Pros:
- You get to access your refund sooner.
- You can use the funds to cover operational expenses.
- Potential tax deduction on interest.
Cons:
- You’ll have to pay interest on the advance.
- Must reconcile the ERC advance against the actual ERC at the end of the quarter.
- Requires extensive documentation.
How to Apply for an ERTC Advance:
Follow these steps to request advance payments for ERC through United Capital Source:
Step 1: File for your ERC with the IRS
If you haven’t already done so, the first step is to file for your ERC. You can file independently, or our dedicated ERTC experts can help you complete the filing process and get the maximum credit possible.
Step 2: Gather your documents.
You’ll need the following documents when you request an ERC advance payment:
- A completed application.
- IRS Form 8821 & 7216.
- IRS Form 941 and 941x for each quarter filed.
- ERC calculations.
- Documentation for ERC qualification from the filer.
- 941s for the two most recent quarters.
- Government ID for all business owners with a 20% stake or greater.
- Most recent business tax return.
- Bank statements for the previous three months.
- An adjusted employment tax return.
You will also need to provide the following after approval but before funding:
- W-9 by the authorized signer.
- Copy of your operating agreement.
- Voided check from your business bank account.
Step 3: Complete the application.
You can download the application form or visit the application page to complete the process.
Step 4: Consult with an ERC expert.
One of our funding experts will reach out to discuss your advance payment application. The call will cover the refund amount, the timeline for receiving your advance, and any associated costs.
Step 5: Accept and get your funds.
Ensure you fully understand the advance payment policy before signing over ownership of the credit. This way, you can access and use the funds to support and grow your business and get the maximum amount available through the ERTC.
The Employee Retention Tax Credit (ERTC) is an incentive created to help businesses reduce payroll costs during the pandemic. It was available up until October 31, 2021 and businesses can still file to receive it retroactively for tax years 2020 and 2021.
The ERTC was first enacted under the CARES Act and later amended in the Consolidated Appropriations Act and the American Rescue Plan Act. Businesses that were subject to a full or partial shutdown due to state or federal government orders or experienced a decline in gross receipts of 50% or more compared to the same timeframe in 2019 were eligible for the credit.
The amount of the credit was determined by the amount of qualified wages paid per employee during the pandemic. The amount was equal to 50% of up to $10,000 in wages during 2020 and 70% of up to $10,000 in wages per quarter during the first three quarters of 2021, with a total of $21,000 per employee annually.
The IRS applied the credit to the employer portion of the employee's social security tax and refunded it after subtracting the employer's share of those taxes.
Unfortunately, the process of receiving the refund has been slow. The IRS was already dealing with a backlog of ERTC requests before the slowdown and it took an average of six months to one year to receive the funds. However, with the slowdown it looks like businesses can expect to wait well over a year to receive the funds now.
This is because the IRS is slowing down the process to combat fraudulent or overstated claims. The agency is also going to review approved refunds for errors or fraud and if the IRS finds it issued more than a company was eligible for due to fraud or incorrect filings, the business might have to repay the refund with interest.
If you are looking to claim the ERTC, you can apply for credit on wages during the active period. It can be complex and confusing to navigate, so you can consult your accountant or tax pro on completing forms 941 and 941x, or you can get help from an ERTC expert.
For businesses that need their refund sooner, there are financing companies that offer ERTC advances. These companies provide an advance based on the amount of the ERTC, and the refund check goes to the lender to repay the advance. You should ensure you fully understand the advance payment policy before signing over ownership of the credit.
If you are considering an ERTC advance, the steps are simple. You must first file for your ERTC with the IRS and then gather the necessary documents. You can then complete the application form and consult with an ERTC expert. Once approved, you will need to provide additional documents before getting your funds.
The benefits and drawbacks of an ERC advance include the ability to access your refund sooner and use the funds to cover operational expenses, as well as the potential tax deduction on interest. However, you may have to pay interest on the advance and reconcile the ERC advance against the actual ERC at the end of the quarter. You will also need extensive documentation.
ERTC advances are beneficial for businesses in need of funds sooner than the IRS can issue them. However, you should understand the process and ensure you are aware of the associated costs.
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