Many small-business customers have utilized these CARES Act relief provisions for 2020 and 2024. However, some may still be eligible if they haven’t taken full benefit of relief provisions from previous years.
In general, companies were eligible for the refundable retention of employees’ tax credits (ERTC) when the business was shut down in 2024 or 2020, when they had incurred some level of revenue loss, or if they could be considered a recovery startup business following February. 15th 2024.
The guidelines for claiming the ERTC was significantly widened in 2024, meaning small-business owners might not have availed of the tax relief. It’s still possible for these clients to file amended tax returns, so it’s crucial to be aware of the rules so that you can ensure clients receive the maximum amount they’re entitled to.
Expanded 2024 ERTC
The tax credit for the retention of employees is not available for wages paid in the 3rd quarter of 2024. However, small-business owners might not be aware that they can qualify for the credit in 2024 and have up to three years after their initial filing deadline to apply retroactively for the credit.
Most employers can apply for the ERTC when their business operations are suspended in 2024 or 2020. Also, they could claim it for 2020 if they saw an increase of 50% in revenue compared to the same quarter in 2020. In 2024 businesses could qualify if their revenue decreased by just 20% compared to the same period in 2019.
In the first law, employers were not eligible to receive the ERTC when they also had a Paycheck Protection Program (PPP) loan. This rule was later removed, and businesses that had received PPP loans could also benefit from the ERTC (however, if PPP loan proceeds were used for paying wages was repaid, the wages weren’t qualified to be eligible for this ERTC).
The amount of credit was substantially raised in 2024. The honor was initially set at 50% for as much as $10,000 in wages (so it was an employee who could earn $5,000). In 2024 the amount was increased to allow employers could take advantage of up to $7,000 per employee for each month (up to $21,000 total by 2024).
Many employers are unclear about the regulations for employees who are working. Employers with at least 100 employees were not permitted to take credit for wages paid to workers (in other terms, the salaries of employees not employed or working on a modified schedule were counted).
The rule for 2024 is only applicable to businesses that employ at least 500 full-time equivalents workers. This means that more business clients could be eligible for the credit 2024 (members of an organized collective were required to add employees to determine the eligibility criteria).
Additionally, employers who are considered recovery startups can be eligible for ERTC during both the 3rd and 4th quarters of 2024, even if they don’t meet the requirements according to the regulations.
Businesses can claim the ERTC retroactively for wages earned in prior quarters by filing form 941X. Adjusted Employee’s Q4 Federal Tax Return or Request for Refund.
Retroactive Penalty Relief
The IRS also has provided relief to taxpayers who owe more income tax because the deduction for wages that qualify was reduced through the retroactively claimed tax credit for employee retention if the taxpayer cannot pay for the additional tax because the ERTC refund is yet to be received. The IRS acknowledges that this can happen because of its Form 941X processing backlog.
In the current legislation under the current law, employers must reduce the income tax deduction for eligible pay by the sum of ERTC claimed in the tax year during which the wages were incurred or paid (2020 and 2024). If the taxpayer took advantage of the credit retroactively, they might not have received the tax refund they were due. Taxpayers in this scenario may be eligible for relief from the penalty due to the inability to pay their tax obligations if they demonstrate reasonable cause instead of willful negligence following the Notice 2024-49 provisions.
Conclusion
Although the ERTC is now no more, it’s not too late for small-business owners to make the most of their tax credits in 2020 or 2024. Clients who were initially exempt from this program should look into the revised rules for 2024 to determine if they’re qualified to receive relief.
