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- If you had to shut your business down due to a government order during the pandemic, your company could get a tax credit.
- It's not too late to apply, and businesses that saw significant revenue declines are eligible, too.
- Even if your company already filed taxes for 2020 and 2021, it might not be too late to claim the credit.
- Check your eligibility with Innovation Refunds.
When applied correctly, tax rules can save businesses a lot of money. Even if you have a licensed tax professional assisting you, it never hurts to look into tax breaks that can bolster your bottom line — and the Employee Retention Credit is one that your business could be missing out on.
A refundable employment tax credit put into effect in March 2020, the ERC was intended to help businesses offset the cost of keeping workers employed during the COVID-19 pandemic. It provides some tax relief for businesses that paid wages to employees between the start of the pandemic and the end of 2021. That was a while ago, but it still might not be too late to claim the ERC , especially if any or all of these signs apply to you in 2023.
1. A government order shut down your business
If a government order required your business to shut down due to the COVID-19 pandemic at any time in 2020, or during the first three calendar quarters of 2021, that's a sign that it may qualify for the ERC. However, if your business paid no wages at all during that time, the ERC wouldn't apply.
There are other exceptions to the rules, so it's worth looking at the limitations. In many instances, a forced business closure could bring some relief in the form of ERC tax credits, so you might want to consider it if it sounds like your business might qualify.
2. Your business had significant revenue decline
Even though it's been a couple of years since the peak of the pandemic — and even if your business already submitted tax forms for 2020 and 2021 — it still may qualify for the ERC. Sure, not every affected business was forced to shut down by the government, but it certainly wasn't unusual for a company's income to wane during those troubling times.
Unfortunately, here's where the formal guidance might get confusing. The IRS says companies need to have had a "significant decline in gross receipts" for ERC claiming purposes, but it doesn't say what qualifies as significant. However the IRS gives the example of a company with less than 50% of its 2019 revenue. That could be useful as a general guideline if your business is considering applying for the ERC.
3. Your business qualified as a recovery startup business for the third or fourth quarters of 2021
This is a highly specific sign that only applies during two quarters of 2021 — but again, qualifying businesses should still be able to apply for the ERC in 2023 (for 2021 taxes, not 2023 taxes). The question, then, is what qualifies as a "recovery startup business."
IRS guidelines say that a recovery startup business began doing business after February 15, 2020 (that's the "startup" part of the equation, presumably), made less than $1 million in revenue per year on average, and doesn't qualify for the ERC for either of the other reasons discussed earlier.
If your business qualifies for the ERC, you can submit a tax-amendment form. For most businesses, that's either Form 944-X (for businesses that file annually) or Form 941-X (for businesses that file annually). As always, time is of the essence in meeting IRS deadlines — and hopefully, your business will get to reap the benefits of this timely tax-relief provision.
Next Steps: Check your eligibility with no upfront cost at Innovation Refunds.