How to File for the ERTC: Information on IRS Form 941

With a record number of company closures and layoffs due to the epidemic, many employers have struggled greatly. In 2020 and 2021, the unemployment rate soared, forcing hundreds of thousands of businesses—some of them permanently—to close their doors across the nation. Numerous individuals have been able to survive through it all because of various tax benefits and other federal aid. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020 includes the employee retention credit (ERTC or ERC). To aid people and businesses amid the economic unpredictability of the early pandemic stages, the government passed this legislation. The ERTC was created to assist firms in keeping employees by providing a sizable tax cut on eligible pay. Even though the credit’s eligible term has technically finished, employers can still use it. Here is a detailed explanation of the ERTC, IRS Form 941 usage, and employer filing procedures.

What Is the ERTC Used For?

Employers can set off employee wages by using the ERTC. With the passage of the CARES Act on March 13, 2020, this completely refundable tax credit was introduced. The American Rescue Plan Act of 2021 extended it.

In 2020 and 2021, the ERTC is 50% of the qualifying salary. Additionally, the two years time limits vary:

  • $10k for each employee throughout all quarters in 2020
  • By 2021, the quarterly wage will be $10,000 ($21,000 annually per employee).

Employers report their income, Social Security, and Medicare taxes on IRS Form 941, Employer’s Quarterly Federal Tax Return, which is also where they can claim the ERTC.

However, the credit has expired, therefore you must utilize Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return, or Claim for Refund. All to make a retroactive claim for the credit. This document updates Form 941 which was initially submitted. A subsequent portion of this document contains instructions on how to use this form.

Who Can Participate in the ERTC?

Even though the majority likely have some periods that apply, not all employers are qualified for the ERTC. What you need to know is as follows:

Employee Number

To be eligible, a company has to have at least one employee in 2020 or 2021. Additionally, to be eligible for the credit in 2021, you must have had 500 full-time W-2 employees. Or fewer during the quarter in question. Businesses having more than 500 full-time employees will henceforth be considered significant employers as opposed to those with more than 100 full-time workers as of 2021.

Date of Business Operation

  • Your company’s operations began earlier than February 16, 2020.
  • Losses in Gross Receipts and Shutdowns

You must also fulfill one or both of the following conditions:

  • For 2020: You calculated that during a qualifying quarter, your gross sales were at least 50% lower than they would have been in 2019.
  • For 2021: You determined that, when compared to the same quarter in 2019, qualifying quarters, you lost at least 20% of gross receipts.

Quarters two through four in 2020 are eligible. The passing of the bill on March 13, 2020, signaled the start of the second quarter. Quarters one through three of 2021 are eligible, with Quarter 4 only applying to beginning firms in recovery.

How to Apply for the ERTC Using Form 941 From the IRS

The first step in applying for the ERTC is figuring out your eligibility. Then, gather all the data you’ll require to submit IRS Form 941 along with your computations. You must complete the following steps to file Form 941 or Form 941-X:

1. Select the Correct Form

Locate IRS Form 941, Employer’s Quarterly Federal Tax Return, where you normally report the income tax, Medicare tax, and Social Security tax that you withhold from employee earnings.

2. Utilize Worksheet 1

Find the IRS Form 941 instructions and turn to Worksheet 1 on the last page. The ERTC and the credit for eligible sick and family leave wages are calculated here. If you are eligible for both credits, you must complete all three stages. However, if you are only eligible for the ERTC, you just need to complete steps 1 and 3.

3. Finish Step 1

You must fill out Step 1 of Worksheet 1 to report Social Security tax. That part must be finished first.

4. Finish Step 2.

If you are claiming the sick and family leave credits, only complete step 2 of the worksheet. If it doesn’t apply, go to step 3.

Get in Touch With Our Professionals

It can be challenging and perplexing to understand tax law changes and terminology. Even if you think you are eligible for the ERTC, you might not know how to apply for it. Or what all the IRS tax lingo means. Understanding what new legislation entails for your taxes or your company’s operations is not always simple. You must occasionally seek the advice of professionals.

We assist qualified businesses in properly completing and submitting IRS Form 941 or Form 941-X by the due date. Additionally, we’ll give you advice on how to run the ERTC with PPP loan participation.

To learn more about your choices for employee retention credits, get in touch with Your Part Time Accountant right away!