COVID-19 has caused massive damage to businesses of every size, with many being forced to cut staff or shut down their doors.Employee Retention Bonus (ERB) is a way to keep businesses afloat.
It is a refundable credit that can be claimed by employers on certain wages paid to employees in the event of a pandemic.The ERC is intended to keep employees employed, even when businesses are unable operate normally.
The ERC is a great way to keep your employees engaged and your business running smoothly if you’re a business owner impacted by the pandemic.If you want to know more about the ERC or how to claim it visit the IRS’ website, consult a tax advisor or continue reading below.
For a brief reading of what the Employee Retention Credit or ERC is, take a look at this video from the YouTube channel “ERC Specialists”. You can also continue below to read an in-depth explanation of ERC.
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The Employee Retention CreditAccelerate America Employee Retention Credit Qualifications
Employee Retention credit (ERC), a refundable income tax credit, is available to businesses for wages paid by them during the COVID-19 epidemic.It was established by the Coronavirus Aid, Relief, and Economic Security Act in March 2020 in order to help businesses retain their employees, even if it meant they could not operate normally.
Businesses of all sizes can apply for the ERC, even those that are tax-exempt.To be eligible for the ERC, a company must have had a significant fall in gross receipts and/or have been fully or partial suspended as a result of an COVID-19 government order.
The ERC provides a financial boost for businesses that are affected by pandemic.It can assist businesses in retaining their employees, covering payroll costs, as well as investing in their future.
Why was ERC created
The COVID-19 Pandemic caused an economic downturn that forced many businesses either to layoff employees or shut their doors.The ERC was created to help businesses keep their employees on payroll so that they could quickly reopen and resume normal operations once the pandemic subsided.
ERC Benefits
ERC can be a major financial boost for businesses who have been affected by the pandemic.It can assist in keeping employees on board, which will help the business recover quickly.
The ERC can be claimed by businesses even if no taxes are due.Businesses may also claim ERCs on qualified wages for employees who cannot work because of COVID-19. These employees include those who are furloughed. Accelerate America Employee Retention Credit Qualifications
Impact of ERC on Business and the Economy
The ERC was able to keep millions of Americans working during the COVID-19 pandemic.It also helped companies to weather the economic storm and remain afloat.
It is estimated that the ERC has saved more than 10 million jobs, and prevented hundreds of thousands of businesses from shutting their doors.It also contributed to the recovery of the economy by increasing consumer spending, and investing.
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Eligibility
For businesses affected by COVID-19, the Employee Retention Credit can help them retain their employees.
The only difference between ERC 2020 requirements and those of 2021 is the test for gross receipts.In 2020, the business must have seen a decline of gross receipts by at least 50% in comparison to the same quarter the year before.In 2021 an enterprise must have seen a decline in gross revenue of atleast 20% in comparison to the same period in the previous year.
Business Qualifications
Businesses can qualify for the ERC in two ways:
- ERC eligibility for businesses suspended or suspended partially by a government.Businesses that are required to close down, operate with a reduced capacity or adhere to certain restrictions can be eligible for the ERC.
- Significant decline in Gross Receipts: An eligible business who has suffered a significant decrease in gross receipts as a result of COVID-19 may also be eligible for ERC.Significant decline in gross revenues is defined as at least a 50% decline in a quarterly in 2020, or at least a 20% decline in a quarterly in 2021 when compared with the same quarter the previous year.
Examples and Scenarios
You can use the following examples to demonstrate each eligibility criterion.
A government order can suspend a person’s rights in full or part
- ERC may be available for a restaurant that has to close because of a government directive.
- The ERC is available to gyms that are required to operate with a reduced capacity because of a COVID-19-related government order.
Significant decline in gross receipts:
- ERC is available to retail stores that experience a 50% drop in sales as a result of COVID-19.
- ERC is available to manufacturers who are unable to run at full capacity because of supply chain disruptions.
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Credit Amount
Employee Retention (ERC) Credit is an income tax credit which businesses can claim in relation to wages that were paid during the COVID-19 Pandemic.The amount of the credit is dependent on the business’s quarter and employees.
Credits for 2020 are equal to 50% the qualified wages paid by employees, up to a maximum amount of $10,000 per employee.This means that a business could receive a credit of up to $5,000 per employee for 2020.
Credits are equal to 70% of qualified wages for the first 3 quarters of 2020, with a maximum per employee of $10,000.For the first three-quarters of 2021, a business can receive up to $7,000 in credit per employee. This could amount to up to $21,000 for each employee.
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Claim the Credit
How to Claim the ERC when Filing Federal Employment Tax Returns
Businesses must amend Form 941X, Adjusted Employer’s Quarterly Federal Income Tax Return or Claim For Refund, to claim the Employee retention credit (ERC) in federal employment tax returns.This form may be used for any quarter that the business is eligible for the credit.
Claim the ERC by Claiming it in Advance
Businesses have three choices for claiming ERCs:
- Claim credit in advance. Businesses can claim credit in advance by reducing their quarterly deposits for employment tax.Businesses must submit Form 7200 to the IRS, Advance Payments of Employer Taxes and Credits.
- Reduce employment tax deposits: Businesses can also reduce their quarterly employment tax deposits by the amount of the credit they expect to receive.To do this, businesses must file Form 941 with the IRS and indicate the amount of the credit they are reducing their deposits by.
- Businesses can ask for a refund if they have already paid the employment tax. They should file Form 941-X at the IRS.
Calculating the Amount of the Credit and Avoiding Double-dipping with Other Relief Programs
Multiplying employee wages with the applicable credit rate will give you the ERC.The credit rate for 2020 is 50% and for the first quarter of 2021, it’s 70%.
Businesses must be cautious to not double dip with other relief programmes.For example businesses cannot claim ERC for wages used to claim Paid Family and medical leave credit or the Work Opportunity Tax Credit.
Tips and Resources for Recordkeeping and Documentation
Keep detailed records for all wages that were paid to employees in the ERC period.This will assist businesses in accurately calculating the amount they are entitled for as well as supporting their claim if the IRS audits it. Accelerate America Employee Retention Credit Qualifications
Here are some helpful tips on documenting your records and documents:
- All payroll records should be kept, including W-2s and Forms 941s.
- Keep track of all the hours worked by your employees including holidays, sick days, and vacations.
- Keep track of all the wages that employees receive, including overtime, bonuses, and base wages.
- Keep track of all government orders that affect your business.
The IRS offers many resources for businesses to claim the ERC. This includes FAQs and fact sheets.Businesses can call the IRS at 1-800-829-1040 for assistance.
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Examples of Eligible Businesses
Businesses that have been affected by the COVID-19 Pandemic can apply for the Employee Retention Credit.These are some examples of businesses who may qualify for the Employee Retention Credit.
- Government orders force restaurants to close
- Retail stores that experienced a significant decline in sales
- Disruptions in the supply chains prevent manufacturers from working at full capacity
- Nonprofit organizations that saw their donations decline
- Hotels and other hospitality businesses
- Travel and tourism business
- Entertainment and event business
- Personal care businesses
- Gyms and fitness studios
- Salons & spas
- Retail shops selling non-essential items
- Businesses who were forced to operate with a reduced capacity
- Businesses that were forced to implement new safety measures and protocols
- Businesses that have experienced an increase in costs as a result COVID-19
Aside from these examples, businesses that have been fully or partly suspended by a government directive or who have experienced a significant drop in gross receipts as a result of COVID-19 are also eligible for ERC. Accelerate America Employee Retention Credit Qualifications
Below are some specific examples on how businesses have utilized the ERC.
- The ERC allowed a restaurant to retain its staff after it was forced to shut down for several months by government order.
- A retail store which experienced a drop of 50% in sales due COVID-19 could offset its payroll expenses by using the ERC.
- ERC allows a company to maintain its workforce and produce essential products despite being unable to run at full capacity.
- A nonprofit organization whose donations declined due to COVID-19 used the ERC to retain its employees and continue providing essential services.
If you are a business owner and you are unsure whether or not you are eligible for the ERC, I encourage you to contact a tax professional.You can get help from a tax professional to determine your eligibility for the ERC and claim it if eligible.
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Avoiding Scams
Risks of ERC Scams and Aggressive Marketing
Unfortunately, there are scammers that try to take advantage business owners who are eligible for Employee Retention Credits (ERC).These scammers might use aggressive advertising tactics to convince businesses that they should sign up for their service, even though the business may not be eligible for ERC.
Red Flags and Warning Signs
There are warning signs that could indicate an ERC scammer.
- The company promises to give you a full refund without reviewing any of your records.
- They charge high fees upfront or take a portion of your refund.
- The salespeople are aggressive and use high-pressure tactics. Accelerate America Employee Retention Credit Qualifications
- They do not belong to an organization that is reputable.
- Your personal or financial data is requested upfront.
Reporting Suspicious Activity and Protecting Personal Data
If you have been contacted by an ERC scammer , you should notify the IRS .Call 1-800-829-1040 to report the scam or visit the IRS website.
Protecting your financial and personal information is also important.Never give out personal information to someone who contacts you without your permission.If you’re not sure if a company is legit or not, you should check reviews online. You can also contact the IRS.
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Conclusion
In this article, we have discussed the Employee Retention Credit (ERC), a tax relief program that helps eligible employers keep their employees on payroll during the COVID-19 pandemic.We have discussed eligibility requirements, claiming processes, and possible scams related the ERC.
Also, we have provided some resources and tips for documenting and keeping records.The ERC is a valuable benefit that can help employers reduce their employment tax liability, improve their cash flow, and support their workforce.If you qualify as an employer, please claim the ERC and get professional assistance if you require it.
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Employee Retention Credit: Frequently Asked Questions
Accelerate America Employee Retention Credit Qualifications
What is ERC?
Businesses affected by COVID-19 can apply for a refundable income tax credit.
This credit is equal to 50% of qualified wages paid to employees in 2020 and 70% of qualified wages paid to employees in the first three quarters of 2021.
Who is eligible for ERC funding?
Businesses that have experienced a significant drop in gross receipts or those that were suspended or fully suspended by government orders due to the COVID-19 epidemic are eligible for the ERC.
What is a qualified wage?
Wages, salaries, tips, and bonuses are all included in the definition of a qualified wage.
Health insurance premiums paid by the employer are also considered qualified wages.
How do you claim your ERC?
Businesses can claim the ERC by filing an amended Form 941 or Form 941-X with the IRS.The amended Form 941 X must be submitted within three years from the original date of Form 941.
Do I have to repay my ERC?
The ERC is not a tax credit that needs to be repaid.
Can I claim ERC even if I have received a PPP Loan?
Yes, businesses can claim the ERC even if they received a PPP loan (Paycheck Protection Program).
Businesses can’t claim ERC on wages they used for PPP loans.
Can self-employed people claim the ERC?
Self-employed individuals can apply for the ERC.
Self-employed individuals can claim the ERC on their Schedule C form.
Can non profit organizations claim ERC?
Nonprofit organizations can apply for the ERC.
Nonprofits can claim ERC on Form 990 T.
Can companies that own a foreign affiliate claim ERCs?
You can claim ERC on wages paid to foreign subsidiaries.
However, they must also meet certain additional requirements before they are eligible to claim the benefits.
Are there any common mistakes made by businesses when claiming ERC that they should be on the lookout for?
You should be on the lookout for these common mistakes when businesses claim their ERC.
- The credit calculation is incorrect
- The failure to include all qualifying wages
- Failure to amend Form 941-X on time.