How to Apply for the Employee Retention Credit (ERC)

The Self-Filer’s Guide to Claim ERC Today

The Employee Retention Credit (ERC) is providing incredible financial benefits to small and medium-sized businesses across the country. Companies in nearly every industry are receiving payroll tax refunds worth thousands or even millions of dollars, and as a savvy business owner, you don’t want to miss out.

But applying for ERC credits can be a daunting task. IRS regulations are incredibly complicated, and tax penalties await businesses that miscalculate their credits or misinterpret ERC rules. All too often, Uncle Sam’s red tape prevents business owners from claiming government benefits they’re eligible for.

Business owners should not have to lose tax credits they’ve already earned.

In this ERC guide, we will demonstrate how to apply for the Employee Retention Credit. However, we advise you to seek assistance from a tax credit servicer that specializes in the ERC.

How do you apply for the Employee Retention Credit?

Qualifying businesses can apply for the Employee Retention Credit by amending their payroll taxes using IRS Form 941x. You can follow the 941 x instructions below and mail your payroll tax amendments with supporting documentation to your IRS processing center. However, you should consult a reputable tax credit specialist before applying for ERC credits. Experienced ERC providers know precisely how to follow the IRS’s rigorous 941x instructions and maximize your tax refund while staying in compliance with ERC rules.

Applying for the Employee Retention Credit is complicated. Determining your business’ ERC eligibility can be difficult, and calculating your credit amount is even more challenging. If you overclaim your ERC refund, your company will likely have to pay back the extra credit with penalties and interest. If you underclaim it, you miss out on money your business was owed.

We recommend seeking an experienced tax credit provider to handle the ERC claim process for you. If you would like to get started on your ERC application on your own, or simply explore applying for ERC, follow the steps below. However, do not submit a 941x without having an expert review your work.

How to Apply for the Employee Retention Credit

Step 1: Predetermine how and when you qualify for the ERC

The first step in applying for ERC credits is determining which quarters you qualify for, and the reasons you qualify. The ERC treats 2020 as a whole entity, while 2021 is looked at quarter by quarter. This means you must examine each quarter of 2021 individually, and submit a 941-X payroll tax amendment for each quarter in which you qualify. The 2020 ERC, however, is qualified only once for the complete year.

The ERC credit amounts in Q1 or Q2 2020 will impact later quarters, while the credit amounts in Q1 2021 do not impact the credit amount in Q2 2021.

Qualifying for the ERC 2020

To qualify for an ERC tax credit for 2020, your business must meet three qualifications:

1. Your business is based in the USA
2. Your business had 100 or fewer full-time, W-2 employees in 2019*
3. For the third qualification, there are two different avenues to qualification:

EITHER 

• Your business must have experienced a 50% loss of income from a single quarter of 2019 to the corresponding quarter of 2020. Your business does not have to qualify based on the total yearly income. If you only saw a 50% decrease in one quarter (compared to the same quarter in 2019), you can qualify for an ERC refund on employee wages you paid during that quarter.**

OR

• Government orders caused you to modify business operations. This does not require a full shutdown of your business.***

*If your company expanded above the 100-employee threshold in 2020 or beyond, you may still qualify based on your employee count from 2019. Part-time employees working less than an average of 130 hours per month do not count towards the 100-employee cap.

**Your company does not have to meet the declined income requirement for both years to qualify. 2020 is treated as a yearly qualification, meaning your annual income must have declined by the specified amount. 2021 is treated on a quarterly basis, meaning you can qualify by annualized income from a single quarter (divide the given quarter’s income by 3, then multiply by 12).

***Some common reasons to qualify through government mandate impact include social distancing mandates, limited capacity orders, reduced operating hours, etc. The government order must have impacted your business operations by more than 10%.

Qualifying for the 2021 ERC

To qualify for an ERC tax credit for 2021, your business must meet three qualifications:

1. Your business is based in the USA
2. Your business had 500 or fewer full-time, W-2 employees in 2019*
3. For the third qualification, there are two different avenues to qualification:

EITHER

• Your business must have experienced a 20% loss of income from a single quarter of 2019 to the corresponding quarter of 2021. Your business does not have to qualify based on the total yearly income. If you only saw a 20% decrease in one quarter (compared to the same quarter in 2019), you can qualify for an ERC refund on employee wages you paid during that quarter.**

OR

• Government orders caused you to modify business operations. This does not require a full shutdown of your business.***

*If your company expanded above the 500-employee threshold in 2020, 2021, or beyond, you may still qualify based on your employee count from 2019. Part-time employees working less than an average of 130 hours per month do not count towards the 500-employee cap.

**Your company does not have to meet the declined income requirement for both years to qualify. 2020 is treated as a yearly qualification, meaning your annual income must have declined by the specified amount. 2021 is treated on a quarterly basis, meaning you can qualify by annualized income from a single quarter (divide the given quarter’s income by 3, then multiply by 12).

***Some common reasons to qualify through government mandate impact include social distancing mandates, limited capacity orders, reduced operating hours, etc. The government order must have impacted your business operations by more than 10%.

Step 2: Gather documents for each quarter in which you qualify

You need the following documents to calculate your ERC claim:

• 941 payroll tax forms for each quarter of 2020 & 2021
• Profit and Loss sheets for each quarter of 2019, 2020, & 2021
• Payroll summary reports for 2020 & 2021
• Monthly healthcare statements, if applicable (these are considered a payroll cost)
• If applicable, all Payroll Protection Program documents, including forgiveness application

Step 3: How to calculate your ERC claim for each qualifying quarter

Examine your payroll summary report for each quarter in which you qualify. Look at each W-2 employee individually, tallying up each worker’s wages. Do not include wages paid to the majority business owners and their family members — these wages do not qualify for the ERC. Determine which (and when) employee wages were paid with PPP, and subtract that amount from each employee’s total.

For each employee who was paid less than $10,000 in wages in a particular quarter, you can add on any employer-paid healthcare costs, which the IRS counts as payroll costs. At this point, you should have a set of wage costs representing each W-2 employee in your company.

Then, multiply each employee’s total by 0.5 for quarters in 2020 and/or 0.7 for quarters in 2021. 

Finally, add those adjusted employee totals together. This is your ERC claim total and, if calculated correctly, reflects your final ERC refund amount for the particular quarter.

Step 4: 941 X Instructions: Fill the form for each qualifying quarter

First, fill out your unique business information at the top of IRS Form 941-X. Be sure to indicate which quarter and year you are amending in the top right-hand corner of page one. Also, follow the official IRS 941 X instructions.

Part 1: Check option 2 to claim a refund or abatement.

Part 2:

1. Check option 3 to certify your filing of supplementary payroll tax forms.
2. Check all options that apply to your specific payroll tax status.

Part 3:

1. Find the original wage amounts for fields 6 through 40 that you filed in Form 941 and enter those amounts in Column 2.
2. Enter your total corrected amounts in Column 1 using the adjusted employee totals you calculated in step 3. Pay close attention to fields 18a, 26a, 30, 31a, and 33a, as these have to do with the ERC.
3. Subtract Column 2 from Column 1 and enter the difference in Column 3.
4. Multiply the Column 3 values by the amounts specified to the right of Column 3 (or follow the alternative instructions specified there), and enter the product in Column 4.

Part 4: In field 43, provide a detailed description of how you determined your corrections

Part 5: Sign and print your name. If you are a paid preparer, fill out the section titled “Paid Preparer Use Only.”

*Be sure to follow the additional instructions regarding the timing of your 941-X filing on page 6.

As you can see from the instructions, learning how to apply for the Employee Retention Credit is incredibly difficult. Should you have any questions or require assistance from a professional ERC provider, do not hesitate to contact Omega Accounting Solutions.

Where do you mail a 941-X form?

Tax preparers can mail their completed 941x to the nearest Department of the Treasury/ IRS Submission Processing Center located in either Ogden, Utah or Cincinnati, Ohio. For the complete 941x mailing address and to determine your designated processing center, please use the official IRS Form 941x mailing instructions.

How long does it take to receive my ERC refund?

Due to backlogs at IRS submission processing centers, it currently takes about six to nine months to receive your ERC refund. Some businesses have reported waiting up to a year for their ERC refund check to arrive by mail.

However, businesses that need funding now may be eligible for an ERC advance loan from Omega Funding Solutions. ERC bridge loans are secured against your anticipated tax refund, bringing immediate cash flow to cover business expenses now.

Do I Need an ERC Provider to Claim the Employee Retention Credit?

Some internal accountants have claimed the Employee Retention Credit without outside assistance, however, we recommend seeking guidance from a professional ERC provider. As you can see from the application process described above, filing for the ERC with a payroll tax amendment can be quite complicated.

Claiming the ERC without expert help is a risky proposition for your business — even payroll tax professionals and CPAs find this special tax credit difficult to navigate. There is a likelihood that your company’s finance department will miscalculate your credit amount. If they overclaim your refund, your company will be subject to tax penalties and legal scrutiny. If they underclaim your refund, you leave money on the table that you were legally entitled to.

Learning how to apply for the Employee Retention Credit is a monumental task. We recommend consulting an experienced tax incentives advisor to help determine if your company qualifies and guide you through the ERC claims process. 

Contact an ERC Specialist

The tax credit professionals at Omega Accounting Solutions can handle the entire ERC application process for you. If you qualify, Omega’s ERC experts know precisely how to build ERC claims that will stand up to an audit. They’ve already secured ERC refunds for clients in nearly every industry.

With Omega, all you have to do is provide the relevant documents. Their tax credit specialists will perform thorough due diligence on your company’s financial picture to determine your ERC eligibility, calculate your credit amounts, process your claim, and provide supporting documentation to substantiate your ERC. You can simply collect your ERC refund check and get back to doing what you do best.

Contact Omega to claim the Employee Retention Credit the easy way.