Reading time: 2 minutes 30 seconds
Companies that did not apply for the pandemic-related Employee Retention Tax Credit (ERC) when it was introduced in 2020 are up against a deadline. The statute of limitations for payroll tax credits related to Q2 2020 expires on July 31, 2023.
Created by the Coronavirus Aid, Relief and Economic Security Act (CARES) of 2020, the ERC provided a payroll tax credit to help companies a government agency ordered to shut down or that suffered significant loss of revenue due to the pandemic.
For companies that applied in 2020, the ERC was 50% of qualified employee wages, up to a maximum of $5,000 per employee per year. The ERC was significantly expanded in 2021, when companies received a payroll tax credit of 70% of qualified employee wages, up to a maximum of $7,000 per employee per quarter. The ERC expired after Q3 2021 when businesses started recovering from the effects of the Covid-19 pandemic.
First Deadline: July 31, 2023
The statute of limitations for filing amended Form 941 Payroll Tax Returns is three years, making Q2 2023 the first quarter to expire in terms of ERC benefits. Though the quarter lasts from April 1 to June 30, the final deadline for filing an amended return for Q2 2020 will be July 31, since businesses have 30 days to file their 941s after a quarter closes. Important note: Since the ERC started on March 13, 2020, the credit for March 13 – March 31 is reported with the Q2 2020 payroll tax return.
Looking out to the end of the year, the deadlines for filing will be October 30, 2023, for Q3 2020, and January 31, 2024, for Q4 2020.
Companies that did not apply for the ERC for Q2 2020 may still claim a refund if they met the key qualifications in 2020:
- They were subject to a full or partial shutdown order by a government agency due to the pandemic, or
- They suffered a reduction in gross receipts for Q2 2020 of at least 50% compared to the same quarter in 2019.
Is Filing an Amended Return Worth It?
To determine your eligibility for the retroactive ERC, your company must have the following documentation:
- Payroll data from any quarter in 2020 for which you are applying,
- The amount of the credit for which the company would qualify,
- Proof of a government shutdown order, OR
- Proof of a 50% or greater reduction in gross receipts compared with the same quarter in 2019.
To determine if filing amended payroll tax returns is worth it, you must also consider the cost of filing (including accounting fees) and one more potentially significant cost. If you file amended payroll tax returns for any quarter(s) in 2020, you will also need to file amended tax returns for the year since your payroll deduction for the year would be reduced by the amount you receive in an ERC refund. This introduces both the cost of amended tax return preparation and the additional taxes you may pay due to the smaller payroll deduction.
For some companies, the size of the ERC refund is worth the costs of filing amended returns, and for others, it is not. Some companies may find the benefits of filing amended payroll tax returns for 2021 to be greater than for 2020 because of the significant expansion of the credit for that year.
Many companies filing amended payroll tax forms find it takes six months to a year to receive their refunds from the IRS, though smaller refunds are usually processed faster.
We’re here to help
If you would like to discuss whether your company could benefit from retroactively claiming the ERC for any quarter in 2020 or 2021, contact your JLK Rosenberger team member, or click here to contact us. We look forward to speaking with you soon.