2020 Retroactive Employee Retention Credit
As part of the Consolidated Appropriations Act of 2021, which was signed on December 27, 2020, Section 206 of the Taxpayer Certainty and Disaster Tax Relief Act permits an eligible employer to take the Employee Retention Credit (ERC), even if the employer has received a Paycheck Protection Program (PPP) loan for 2020. The ERC can be taken retroactively, for qualifying wages paid after March 12, 2020.
The IRS guidance allows qualifying employers to amend Form 941 to claim the ERC and request a refund. This can be accomplished by amending the 2020 second, third and fourth quarter 941’s using Form 941-X and reporting ERC wage amounts on Line 11c or Line 13d. This process can take between 10-12 weeks, sometimes longer to receive the credit from the IRS.
Highlights of the ERTC changes are summarized below:
To receive the credit faster, advances can be requested by submitting Form 7200 to the IRS for current quarters. Businesses who choose to use Form 7200 must notify their payroll provider so it can be reconciled with Form 941. Failure to do so would result in an IRS advance payment AND application of the same credit on the amended return, which would result in underpayments of tax, and significant IRS penalties and interest. Note: This does not apply to most PaySteady clients since our technology claims and applies the tax credits in real-time per payroll.
Read more about the background of the Employee Retention Credit and Consolidated Appropriations Act of 2021 on our blog.
To better understand your options or initiate this process for 2020, reach out to PaySteady at 703-672-1225 or email@example.com and one of our payroll specialists will be happy to help!
Employers should consult with appropriate legal and tax advisors to determine whether the organization is eligible for the ERC, noting the different rules that apply for 2020 and 2021.