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 by at the least the tip of the yr in an effort to guard small enterprise house owners and taxpayers from scams and fraudulent claims.

As a small enterprise proprietor, you might be questioning what this moratorium means for you and your online business. Right here’s every little thing we all know and the way you should still be capable of apply for the ERC throughout the moratorium.

What we all know

We all know that the IRS is constant to course of ERC purposes that have been acquired previous to the moratorium. Nonetheless, processing occasions shall be longer, the IRS suggested in its Sept. 14, 2023 replace — doubtlessly 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 1000’s of ERC claims have been referred for audit. It is usually engaged on tons of of felony circumstances on promoters and companies submitting suspicious claims. 

Payouts for these beforehand filed claims will proceed by the moratorium, however at a slower tempo as a result of extra in-depth compliance evaluations. This payout interval will prolong to 180 days from its beforehand customary processing purpose of 90 days, in response to the IRS. Nonetheless, a payout might 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 dealing with penalties or curiosity funds that stem from dangerous claims that aggressive entrepreneurs pushed.

For any enterprise house owners desirous to submit claims after September 14, 2023, whereas the IRS shouldn’t be reviewing new purposes 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 house owners planning to submit an ERC declare after September 14, 2023 ought to be sure that their companies are eligible for the tax credit score previous to filling out the stringent utility.

Pay certified wages

First, be sure that your online business paid certified wages to your workers. The definition of certified wages varies relying on the quantity of workers your online business 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 workers in 2019. For tax yr 2021, it expanded the definition to incorporate companies that averaged 500 or fewer full-time workers in 2019.

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

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

Authorities-mandated full or partial suspension

Your enterprise should have been impacted by both a government-mandated lockdown or lower in income to be eligible for the ERC. You possibly can qualify if your online business was impacted by a full or partial suspension of operations on account of a authorities COVID-19 order throughout any quarter (this consists of restrictions on hours or capability).

This space of eligibility standards could be complicated, so be certain to work with a vendor who’s conversant in authorities orders, their influence, and the timeframe they have been enacted.

Vital decline in gross receipts

If your online business skilled a “vital decline” in gross receipts as outlined by the IRS, then it may be eligible for the ERC. For tax yr 2020, a big decline implies 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 big decline means quarterly receipts are lower than 80% in comparison with the identical interval in 2019.

If your online business didn’t see a 20% decline in gross receipts within the first 3 quarters of 2021 in comparison with 2019, you can too elect to make use of the instantly previous quarter for comparability. Which means that if a enterprise’s Q2 of 2021 isn’t eligible in comparison with Q2 of 2019, it will probably as a substitute 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 acquire 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 below $1 million. So long as you meet these two standards and have a number of W2 workers, you don’t have to fulfill the opposite eligibility necessities. If your online business qualifies as a “restoration startup enterprise,” you possibly can apply for the credit score for Q3 and This autumn of 2021, and your online business 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 workers
  • 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 workers
  • 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 below $1 million
  • Have a number of W-2 workers

If your online business meets these necessities, then it could be eligible for the ERC. When making use of, just be sure you have gathered thorough data proving wages paid, gross receipts, authorities orders, and different required documentation. Please notice that companies that improperly declare the ERC shall be required to pay it again, doubtlessly with penalties and curiosity.

Making use of for the ERC throughout the moratorium interval

It is best to seek the advice of an accountant or tax skilled previous to filling out any types. They are going to assist information your online business by this stringent and doubtlessly complicated course of. 

You possibly can apply for the ERC throughout the moratorium interval by Lendio. We’ll allow you to establish what paperwork you could declare the ERC. We’ve partnered with ERC and tax specialists to assist you within the complicated utility course of. They might help navigate you thru tough tax legal guidelines and keep away from expensive errors whereas calculating the complete tax credit score that you simply qualify for. After your utility is full, we’ll file your ERC declare with the IRS.

Please notice that this course of shall 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 won’t be reviewed till after that date (and with extra stringent compliance evaluate phrases).

When you have extra questions relating to the ERC and/or the ERC moratorium interval, examine FAQ sources from the IRS and Lendio.