The Employee Retention Credit (ERC) is a valuable tax credit offered by the IRS to assist small businesses in retaining their employees during challenging economic conditions, such as those caused by the COVID-19 pandemic. If you missed out on claiming the ERC for previous quarters, you may be wondering if it’s possible to claim the credit retroactively.
The short answer is yes, in certain circumstances you may be able to claim the ERC retroactively. Here’s what you need to know.
You may like to check the ERC FAQ.
Background on the ERC
The ERC was introduced as part of the CARES Act in March 2020 and has been expanded and modified several times since then. The credit is designed to help eligible businesses retain employees by providing a refundable tax credit of up to 70% of qualified wages paid to employees.
Eligibility for the ERC
To be eligible for the ERC, your business must have experienced one of two scenarios:
- Your business was fully or partially suspended due to a government order related to COVID-19, OR
- Your business experienced a significant decline in gross receipts, generally defined as a decline of 20% or more in gross receipts compared to the same calendar quarter in the prior year.
If your business meets either of these eligibility criteria, you may be able to claim the ERC for previous quarters.
Retroactive Claiming of the ERC
Under the current guidance from the IRS, eligible businesses can claim the ERC retroactively for any quarter in which they meet the eligibility requirements. This means that if your business was eligible for the ERC in a previous quarter, but did not claim the credit at the time, you may still be able to claim it retroactively.
The IRS has provided specific guidance on how to claim the ERC retroactively, including:
- Filing an amended Form 941 for the applicable quarter(s) to claim the ERC,
- Filing Form 7200 to request an advance payment of the credit, or
- Requesting a refund of any overpaid payroll taxes for the applicable quarter(s).
It’s important to note that there are specific deadlines for claiming the ERC retroactively. For example, the deadline to file an amended Form 941 for the second quarter of 2020 (April-June) was August 2, 2021.
Must check the Employee Retention Credit FAQs to understand it better!
If you missed out on claiming the ERC for previous quarters, you may be able to claim the credit retroactively. By understanding the eligibility requirements and following the IRS guidance on retroactive claiming, you can take advantage of this valuable tax credit and help your business navigate the challenges of the pandemic.