Get an ERTC Advance on Your Employee Retention Tax Credit Payment
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Intro To Employee Retention Tax Credit
The Employee Retention Credit provides qualified employers with up to $26,000 per employee in tax refunds for the tax years 2020 and 2021. This COVID-19 employee retention credit is available for businesses that had to shut down or experience significant decline during the pandemic.
However, the IRS currently takes anywhere from 6-12+ months to issue the refund and recently stopped advance payment last year. But you don’t have to wait for the government because you can get an advance payment on ERC tax credits through United Capital Source.
We can help you access your money sooner with an ERC tax credit advance payment on the expected credit! This guide covers everything you need to know about Employee Retention Credit advance payments, including how to file for the credit and apply for an advance to receive your money sooner.
Specifically, we'll answer these questions and more:
What is the Employee Retention Tax Credit?
The Employee Retention Credit (ERC) is a refundable tax credit that incentivized companies to retain employees during the Covid-19 Pandemic. The Coronavirus Aid, Relief, and Economic Securing Act (CARES) Act established the ERC.
Eligible employers include those that received state or federal government orders for a full or partial shutdown or experienced a decline in gross receipts by 50% or more compared to the same timeframe in 2019.
Under the provision, eligible businesses could claim a payroll tax refund for qualified wages they paid during the pandemic. The provision underwent several changes and adjustments since its initial implementation under the CARES Act. New legislation changed eligibility allowing businesses that received PPP loans to also qualify in certain situations.
In 2020, the credit was equal to 50% of up to $10,000 in wages paid per employee for all qualifying quarters between March 13, 2020. A qualifying quarter is when there was a decline in gross receipts by 50% or greater during the same quarter in 2019. Total credits could not exceed $10,000 per employee annually.
The IRS applied the credit to the employer portion of the employee’s social security tax, which was fully refundable. The credit served as an overpayment and was refunded after subtracting the employer’s share of those taxes.
The credit equaled 70% of up to $10,000 in qualifying wages per quarter in the first three quarters of 2021. Essentially, employers could claim up to $7,000 per employee per quarter, which equals a total of $21,000 per employee annually.
The IRS applied the credit to the employer portion of the employee’s social security tax, which was fully refundable. The credit served as an overpayment and was refunded after subtracting the employer’s share of those taxes.
Who is eligible for an Employee Retention Credit?
The qualifications for an eligible employer depend on the payroll period. Review the following ERC program criteria.
Qualifying Businesses March 13, 2020, to December 31, 2020
To qualify for wages between March 13 and December 21, 2020, your business must have carried on trade or have been a tax-exempt organization.
If your business was ordered to partially or fully shut down by a government authority or experienced a decline of 50% or more in receipts for the corresponding quarter in 2019 due to a Covid-19-related decline, you could qualify.
Qualifying Businesses January 1, 2021, to September 30, 2021
Businesses applying for the ERC between January 1, 2021, and September 30, 2021, must meet one of two conditions.
Condition 1: An appropriate government authority ordered fully or partially shut down business operations.
Condition 2: Experienced a decline of 20% in gross receipts for the corresponding quarter in 2019 due to Covid-related decline.
Qualifying Businesses October 1, 2021, to December 31, 2021
Most businesses do not qualify for the ERC on wages during Q4 2021. The sole exception applies to recovery startup businesses.
The IIJA amended section 3134 of the Internal Revenue Code to exclude all businesses except recovery startups as defined in section 3134(c)(5).
If you reduced employment tax deposits for Q4 2021 wages on or before December 20, 2021, consult with your tax professional to see if you are exempt from the “failure to deposit” penalty.
How does advance payment for ERC work?
Several lenders provide ERC loan advance payments so businesses can access their funds sooner. As a business owner, you essentially sign over your rights to the ERC in exchange for the advance.
When the IRS issues the ERC refund check, it goes to the lender to repay the advance. Some lenders will charge a small monthly interest rate until the check is received, while others might charge a one-time fee.
Ensure you fully understand the advance payment policy before signing over ownership of the credit.
What are the qualifications for an ERTC advance?
Full-time W2 employees
A verifiable ERC refund
How to apply for an ERTC advance payment:
Follow these steps to request an advance on your approved ERTC through United Capital Source
Step 1: File for your ERC with the IRS
If you haven’t done so, the first step is filing for your ERC. You can file independently, or our dedicated ERTC experts can help you complete the filing process and get the maximum credit possible.
Step 2: Gather your documents
You’ll need the following documents when you request an ERC advance payment:
- A completed application.
- IRS Form 8821 & 7216.
- IRS Form 941 (original) and 941x (amended) for each quarter filed.
- ERC calculations.
- Documentation for ERC qualification from the filer.
- 941s for the two most recent quarters.
- Government ID for all business owners with a 20% stake or greater.
- Most recent business tax return.
- Bank statements for the previous 3 months.
You will also need to provide the following after approval, but before funding:
- W-9 by the authorized signer(s).
- Copy of your operating agreement.
- Voided check from your business bank account.
Step 3: Complete the application
You can download the application form or visit the application page to complete the process.
Step 4: Consult with an ERC Loan expert
One of our funding experts will reach out to discuss your advance payment application. The call will cover the refund amount, the timeline for receiving your advance, and any associated costs.
Step 5: Accept and get your funds
Once we finalize the application process, you can expect to receive your funds according to the discussed timeline. Repayment occurs when we receive the ERC refund check from the IRS.
What are the pros & cons of an ERC loan advance?
Here are the benefits and drawbacks of an ERC loan advance.
PROS
CONS
Frequently Asked Questions
Here are the most common questions about ERC loan advances.
Does the IRS offer advance payment for an expected tax credit?
The IRS allowed for certain advance payments during the COVID-19 pandemic using Form 7200. However, it stopped accepting Form 7200 after January 31, 2022.
Since businesses could no longer receive advance payments from the IRS, private lenders and some hedge funds began to offer advances for employer credits. They filled the gap with Employee Retention Credit advance payment.
The advance fee structures for hedge funds are currently higher than fees from direct lenders.
What wages qualify for Employee Retention Credits?
Qualifying wages depend on the average number of employees in 2019.
Qualifying Wages 2020
If a business averaged under 100 employees during 2019, it could claim the ERC for all employees, whether they were working or not. Suppose a business averaged over 100 employees in 2019.
In that case, it could only claim wages for employees who didn’t work or provide services (i.e., on furlough or some other form of suspension from work duties.)
Qualifying Wages 2021
Businesses that averaged 500 or more employees in 2019 could only claim the ERC for qualified wages paid to employees who didn’t work during the qualifying period.
If a business averaged fewer than 500 employees in 2019, it could claim the ERC for all employees, whether working or not.
Why does it take so long to receive an IRS ERC?
Employee Retention Tax Credits are sometimes called “America’s best-kept secret.” That’s because Paycheck Protection Program (PPP) loans got most of the attention from business owners.
ERTC was the lesser-known option. Per the National Federation of Independent Business (NFIB), only 4% of small business owners are familiar with the refundable tax credit.
However, now that PPP loans are expired, and recent legislation allows businesses that received PPP loans to also file for ERTC, more companies are applying for the credit. As a result, the IRS has a backlog of requests, which has prolonged the turnaround time.
Any filing errors can also cause delays. For example, if you forgot to deduct PPP loan forgiveness, it can take more than 12 months to correct the filing and receive your money.
How do I file for an ERC?
Businesses can apply for the credit on wages during the active period (March 13, 2020-September 30, 2020, for most companies). You can consult your accountant or tax pro on how to complete forms 941 and 941x, or we can help you file for the ERTC with a free consultation.
How do I find out how much I can receive for an ERC?
The first step is determining which wages qualify and which don’t. You can use the qualifications above to see. We’re going to use a simple example to show how it works.
Let’s say you ran a retail store, and your gross receipts declined by 80% in Q1 2021 compared to Q1 2019. Your business employs 20 people, so you’re well under the 500-employee threshold.
You can claim 70% of wages up to $10,000 for the quarter. Assuming all 20 employees earned wages equal to or greater than $10,000, you can claim $7,000 per employee, which works out to $140,000 for the quarter. If the pattern held for the first three quarters of 2021, your total credit would be $420,000 for the year.
The actual amount you receive will vary depending on how much business you did in 2020 and 2021 vs. the same calendar periods in 2019, the average number of employees, and whether or not your received PPP loans and PPP forgiveness.
When does the ERC expire?
The Employee Retention Tax Credit expired on September 30, 2021. For a recovery startup business, the credit expired on December 31, 2021.
While the ERC is no longer in effect, employers can still claim the credit for wages paid during the active period. Businesses can file Form 941-X up to three years after filing or two years after paying, whichever is later.
ERTC Advance - Final Thoughts
If you remained in business during the Covid-19 pandemic and retained employees, you could qualify for an ERC tax credit. But getting the money could take months or even a year.
With an ERC loan advance, you can access that money much sooner than waiting for the government. Fortunately, our ERTC experts can help you file for an ERC credit and request an ERC advance payment.
Our experts can help you get your money.
Contact us today whether you need to file or have already filed and want an advance.
