The Employee Retention Credit (ERC) has been a game-changer for businesses, offering financial relief by offsetting payroll expenses during challenging economic periods. Originally introduced as part of the CARES Act in 2020, the ERC aims to incentivize businesses to retain their workforce, even when revenue declines or operational disruptions occur. However, many businesses missed out on claiming the ERC when it was first introduced. The good news is that it’s not too late to benefit, thanks to the option of retroactive claims.

In this guide, IgniteHCM, a trusted HR and payroll consultancy, walks you through the process of claiming retroactive benefits for the Employee Retention Credit. With expert support, businesses can navigate the complexities of the ERC, maximize their eligible credits, and boost financial stability.

What Is the Employee Retention Credit?

The Employee Retention Credit is a refundable payroll tax credit designed to help businesses retain employees during periods of economic uncertainty. The credit is calculated as a percentage of qualified wages paid to employees, and the amounts vary depending on the specific eligibility period. For businesses that qualify, this credit can provide significant savings, offering an incentive to maintain a stable workforce.

Can You Claim the ERC Retroactively?

Yes! Businesses that missed claiming the Employee Retention Credit during eligible quarters in 2020 or 2021 can still apply retroactively. To do this, you need to file an amended payroll tax return using IRS Form 941-X. Retroactive claims are allowed as long as the applicable statute of limitations hasn’t expired, which is typically three years from the original filing date.

At IgniteHCM, we help clients evaluate their eligibility for retroactive claims and ensure they receive every dollar of credit they qualify for.

Steps to Claim Retroactive Benefits for the Employee Retention Credit

Claiming the ERC retroactively involves several key steps. Here’s how IgniteHCM can help streamline the process for your business:

1. Assess Eligibility

The first step is determining whether your business qualifies for the ERC during the eligible periods. Eligibility is based on two main criteria:

• Decline in Gross Receipts: Your business experienced a significant decline in gross receipts compared to the same quarter in 2019.

• Full or Partial Suspension: Your business operations were fully or partially suspended due to government orders during the COVID-19 pandemic.

IgniteHCM conducts a thorough review of your financial records and operational impact to assess eligibility for each quarter.

2. Identify Qualified Wages

Qualified wages include salaries and certain healthcare costs paid to employees during eligible periods. The maximum credit amount per employee varies depending on the year:

• 2020: 50% of qualified wages, up to $10,000 per employee annually (maximum credit of $5,000 per employee).

• 2021: 70% of qualified wages, up to $10,000 per employee per quarter (maximum credit of $7,000 per employee per quarter).

IgniteHCM helps you identify which wages qualify under the ERC guidelines, ensuring no eligible expense is overlooked.

3. Calculate the Credit

Once eligibility and qualified wages are determined, the next step is calculating the credit for each eligible quarter. Accurate calculations are essential to avoid errors or delays in receiving the credit. Our team at IgniteHCM uses advanced payroll tools to ensure precise calculations and compliance with IRS requirements.

4. File Form 941-X

To claim the ERC retroactively, you must amend your original payroll tax filings using IRS Form 941-X. This process involves:

• Filling out the form for each quarter where you are claiming the credit.

• Including detailed information about qualified wages and healthcare expenses.

• Submitting the amended form to the IRS.

IgniteHCM provides hands-on support in preparing and filing Form 941-X, making the process seamless for employers.

5. Monitor Your Refund

After filing your amended returns, the IRS will review your submission and issue a refund for the credit amount. Processing times can vary, but IgniteHCM stays in touch with the IRS and keeps you updated on the status of your refund.

Common Challenges When Claiming Retroactive ERC Benefits

While claiming retroactive ERC benefits is a valuable opportunity, businesses often encounter challenges, including:

• Understanding Eligibility Rules: The ERC rules and eligibility criteria can be complex, especially for businesses with unique operational circumstances.

• Accurate Recordkeeping: Gathering the necessary documentation to support your claim can be time-consuming.

• Compliance with IRS Guidelines: Mistakes in calculations or filing can lead to delays or rejections.

With IgniteHCM by your side, these challenges become manageable. Our experts ensure compliance, accuracy, and efficiency throughout the process.

Why Work with IgniteHCM for the ERC?

At IgniteHCM, we specialize in HR and payroll consulting, offering tailored solutions to help businesses navigate tax credits like the Employee Retention Credit. Here’s why businesses trust us:

• Expert Guidance: Our team understands the intricacies of the ERC and stays updated on any changes to IRS guidelines.

• Customized Support: We tailor our services to your unique needs, ensuring you get the maximum benefit.

• Time Savings: Handling retroactive claims can be time-intensive; we take care of the process, so you can focus on your business.

Tips for Maximizing Your Retroactive ERC Claim

1. Act Quickly: The window for retroactive claims won’t remain open indefinitely. Start the process as soon as possible to avoid missing out.

2. Maintain Accurate Records: Keep detailed payroll records, financial statements, and documentation of government shutdown orders affecting your business.

3. Work with Experts: Partnering with a trusted consultancy like IgniteHCM ensures you don’t leave money on the table.

Conclusion

The Employee Retention Credit is a valuable financial resource for businesses, and the ability to claim retroactive benefits provides a second chance to access this support. By assessing eligibility, identifying qualified wages, and filing accurate amended returns, businesses can secure significant refunds.

With IgniteHCM as your partner, the process becomes straightforward and stress-free. Our team of HR and payroll experts is dedicated to helping businesses unlock the full potential of the ERC, ensuring compliance and maximizing benefits. Don’t let this opportunity pass—start your retroactive claim today and strengthen your business’s financial future.