The Employee Retention Tax Credit (ERTC) is a refundable tax credit established under the CARES Act to provide financial aid to small businesses and startups impacted by the pandemic.
Through this tax credit, businesses could see up to $21,000 per employee. To file for the tax credit, business owners need to apply using qualified wages paid to employees during the COVID-19 pandemic.
How Are Startups Eligible for the ERTC?
Startups have additional benefits available to them through the ERTC. The recovery startup ERC tax credit allowed businesses to apply during the fourth quarter of the 2021 tax year if they qualify. To qualify for the fourth quarter of 2021, business operations must have begun on or after February 15, 2020. The average annual receipts cannot exceed $1 million for businesses applying for the ERC tax credit as a startup.
Recovery startups may apply for the ERTC if they paid qualified wages to employees between March 13, 2020 and December 31, 2020 for the 2020 tax year. They can also apply for the 2021 tax year if they paid qualified wages to employees between January 1st, 2021, and June 30, 2021, in addition to the extended period only available for startups between June and December 2021.
How the IRS’ Recent Pause Impacts Startups
Startups are still able to apply for the ERTC, despite the recent moratorium issued by the IRS for the ERTC. On September 14, 2023, the IRS issued an immediate pause to new ERC processing. This was due to a surge in false claims they had been receiving. The pause is being used to help the IRS determine what additional safeguards they need to prevent scam applications. However, this pause was to prevent ERC mills from submitting false applications. So, startups can still apply either by themselves or with a certified ERC specialist.
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What ERC Mills Are and How to Avoid Them
ERC mills are uncertified or inexperienced ERC “specialists” who charge high upfront fees to submit applications to the IRS. They will apply regardless of whether or not the business they submitted for is fully eligible. These false claims for the ERC tax credit have come under scrutiny from the IRS, which has been auditing a high volume of false claims.
To avoid ERC mills, as well as the risk of an audit, only apply for the ERC tax credit with certified ERC specialists who provide audit protection that ensures that you are in good hands. Never pay high upfront fees to apply for the ERC tax credit. Qualified specialists use compliant fee service models when submitting your application to the IRS.
Has the Deadline Changed?
The deadlines are still the same for the ERC tax credit. Even with the pause, the IRS is still processing ERC applications. Check with your qualified ERC specialist if you are concerned about the timing of receiving your ERC tax credit, or whether or not you can apply. Because of the recent pause, startups may experience longer delays before receiving their refundable tax credit.