Tips for Applying for the IRS Employee Retention Credit
There are some mistakes and hiccups to avoid when you start the process of applying for the ERC. Here’s a list of a few some tips and pitfalls to avoid to help guide you:
- Use Form 941-X. You can no longer include your ERC on Form 941 after you’ve already submitted your return for the applicable quarter. However, you can use Form 941-X to amend your return and include the ERC. Make sure you download the latest version of the form from the IRS website.
- Check all of your calculations. You’ll need your final numbers to report on Form 941-X, along with detailed explanations of how you arrived at those numbers.
- Understand which wages you can include. Qualified wages include wages, tips, and compensation you paid to part-time or full-time employees for the applicable quarter and may also include health plan expenses. Even though the number of full-time employees you have impacts your eligibility as a small versus large employer, you can still include all employees’ wages in your calculations.
- Don’t include contractor payments. You can’t, unfortunately, include money you paid to contractors or freelancers for the ERC. This means anything you report on 1099s for non-regular workers.
- Keep detailed records. You need up-to-date, accurate books anytime you’re planning to take a credit to provide the necessary information for taxes. This means being as organized as possible with payroll and tax information all year.
- You may need to amend your payroll tax return after applying. Your ERC will change what you have to pay for employer taxes, since the credit will change your wage expenses. You don’t have to pay taxes on the ERC, however, since the IRS considers it a refund, not income.
- Don’t miss the deadline. You have three years from when you first filed the original tax return, or two years from when you paid the tax, whichever is later, to claim the ERC.
The best thing you can do to get the ERC is to claim it as soon as you realize you’re eligible. These steps and tips have hopefully helped you understand how to qualify and what to do when you’re ready to apply using Form 941-X. Don’t miss your opportunity to get this substantial tax credit to help your business stay afloat.
