Can I nonetheless apply for the ERC throughout the moratorium?

The IRS introduced an immediate moratorium on processing new Worker Retention Credit score (ERC) claims on September 14, 2023. The moratorium will final via at the least the tip of the yr in an effort to guard small enterprise homeowners and taxpayers from scams and fraudulent claims.

As a small enterprise proprietor, it’s possible you’ll be questioning what this moratorium means for you and what you are promoting. Right here’s all the pieces we all know and the way you should still have the ability to apply for the ERC throughout the moratorium.

What we all know

We all know that the IRS is constant to course of ERC functions that have been obtained previous to the moratorium. Nonetheless, processing occasions will probably be longer, the IRS suggested in its Sept. 14, 2023 replace — probably going from a 90-day turnaround to 180 days or extra. The company has more and more shifted its focus to evaluate claims for compliance considerations and lately introduced that hundreds of ERC claims have been referred for audit. It is usually engaged on lots of of prison instances on promoters and companies submitting suspicious claims. 

Payouts for these beforehand filed claims will proceed via the moratorium, however at a slower tempo as a result of extra in-depth compliance evaluations. This payout interval will lengthen to 180 days from its beforehand commonplace processing purpose of 90 days, in accordance with the IRS. Nonetheless, a payout could take even longer if its declare requires the IRS to additional evaluate or audit it.

The IRS is implementing this extra scrutinous compliance evaluate interval to guard companies from going through penalties or curiosity funds that stem from dangerous claims that aggressive entrepreneurs pushed.

For any enterprise homeowners desirous to submit claims after September 14, 2023, whereas the IRS will not be reviewing new functions till at the least January 1, 2024, you possibly can nonetheless submit an ERC declare throughout the moratorium.

Making use of for the ERC

Small enterprise homeowners planning to submit an ERC declare after September 14, 2023 ought to be certain that their companies are eligible for the tax credit score previous to filling out the stringent utility.

Pay certified wages

First, be certain that what you are promoting paid certified wages to your staff. The definition of certified wages varies relying on the quantity of staff what you are promoting had on the payroll in tax years 2020 and 2021.

For tax yr 2020, the IRS outlined a small enterprise as a enterprise that averaged 100 or fewer full-time month-to-month staff in 2019. For tax yr 2021, it expanded the definition to incorporate companies that averaged 500 or fewer full-time staff in 2019.

Bigger employers can declare the ERC however just for wages and a few healthcare prices paid to staff who didn’t work.

Small companies can declare the credit score for all staff, whether or not they labored throughout the interval or not.

Authorities-mandated full or partial suspension

Your small business should have been impacted by both a government-mandated lockdown or lower in income to be eligible for the ERC. You may qualify if what you are promoting was impacted by a full or partial suspension of operations as a result of a authorities COVID-19 order throughout any quarter (this consists of restrictions on hours or capability).

This space of eligibility standards might be complicated, so make sure that to work with a vendor who’s aware of authorities orders, their impression, and the timeframe they have been enacted.

Vital decline in gross receipts

If what you are promoting skilled a “important decline” in gross receipts as outlined by the IRS, then it may be eligible for the ERC. For tax yr 2020, a major decline signifies that gross receipts for 1 / 4 are lower than 50% in comparison with the identical interval in 2019. For the primary 3 quarters in 2021, a major decline means quarterly receipts are lower than 80% in comparison with the identical interval in 2019.

If what you are promoting didn’t see a 20% decline in gross receipts within the first 3 quarters of 2021 in comparison with 2019, you may as well elect to make use of the instantly previous quarter for comparability. Which means if a enterprise’s Q2 of 2021 isn’t eligible in comparison with Q2 of 2019, it could as an alternative use Q1 or 2021 and evaluate it to Q1 of 2019 to fulfill eligibility necessities.

Restoration startup enterprise

The ERC was amended in 2021 by The American Rescue Plan to let newer companies achieve entry to the tax credit score. A restoration startup enterprise is outlined as one which opened after February 15, 2020, and has annual gross receipts beneath $1 million. So long as you meet these two standards and have a number of W2 staff, you don’t have to fulfill the opposite eligibility necessities. If what you are promoting qualifies as a “restoration startup enterprise,” you possibly can apply for the credit score for Q3 and This fall of 2021, and what you are promoting can obtain a most of $50,000 in ERC per quarter.

Do you qualify for an Worker Retention Tax Credit score?

2020 {qualifications}:

  • Qualifying wages of as much as 100 full-time staff
  • A lower in gross income of at the least 50% in comparison with the corresponding quarter in 2019
  • Or both a full or partial suspension of enterprise operations created by a authorities mandate 

2021 {qualifications}:

  • Qualifying wages of as much as 500 full-time staff
  • A lower in gross income of at the least 20% in comparison with the corresponding quarter in 2019
  • Or both a full or partial suspension of enterprise operations created by a authorities mandate

Restoration startup enterprise:

  • Opened after February 15, 2020
  • Annual gross receipts beneath $1 million
  • Have a number of W-2 staff

If what you are promoting meets these necessities, then it might be eligible for the ERC. When making use of, just remember to have gathered thorough information proving wages paid, gross receipts, authorities orders, and different required documentation. Please observe that companies that improperly declare the ERC will probably be required to pay it again, probably with penalties and curiosity.

Making use of for the ERC throughout the moratorium interval

You need to seek the advice of an accountant or tax skilled previous to filling out any varieties. They may assist information what you are promoting via this stringent and probably complicated course of. 

You may apply for the ERC throughout the moratorium interval via Lendio. We’ll assist you to establish what paperwork it’s good to declare the ERC. We’ve partnered with ERC and tax consultants to help you within the complicated utility course of. They may also help navigate you thru tough tax legal guidelines and keep away from pricey errors whereas calculating the complete tax credit score that you just qualify for. After your utility is full, we’ll file your ERC declare with the IRS.

Please observe that this course of will probably be prolonged considerably as a result of moratorium. Whereas it is possible for you to to submit your utility to the IRS previous to January 1, 2024, it is not going to be reviewed till after that date (and with extra stringent compliance evaluate phrases).

If in case you have further questions relating to the ERC and/or the ERC moratorium interval, examine FAQ assets from the IRS and Lendio.