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 (ERC) Credit is available to businesses that need it.
The ERC is a refundable tax credit that businesses can claim on qualified wages paid to employees during the pandemic.It’s designed to help employers keep their employees, even if the business is unable to function normally.
The ERC may be able to help keep your employees and business afloat if your company has been impacted.For more information on the ERC and how to apply for it, you can visit the IRS site, talk with a professional tax advisor or read 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.
-a}
The Employee Retention CreditDifference Between Refundable And Nonrefundable Employee Retention Credit
Employee Retention Credit (ERC) is a tax credit for businesses that can be claimed if they pay employees wages during the COVID-19 Pandemic.The Coronavirus Aid, Relief, and Economic Security Act created the Employee Retention Credit (ERC) in March 2020. Its purpose is to assist businesses to keep their employees, even if the business is unable to function normally.
ERCs can be obtained by businesses of any size, including those exempt from tax.For a business to be eligible, it must have suffered a significant decrease in gross revenues or been partially or completely suspended by a government order related to COVID-19.
Businesses that have been affected by this pandemic can receive a substantial financial boost from the ERC.It can help businesses to retain employees, pay for payroll, and invest in the future.
Why was ERC created
The COVID-19 pandemic caused a severe economic downturn, forcing many businesses to lay off employees or close their doors altogether.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 offer a significant boost in financial support to businesses impacted negatively by the pandemic.It can also assist businesses in retaining their employees. This is vital for a fast recovery.
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. Difference Between Refundable And Nonrefundable Employee Retention Credit
Impact of the ERC on Businesses and the Economy
The ERC is credited with keeping millions of Americans at work during the COVID-19 outbreak.The ERC also helped to keep businesses afloat through the economic storm.
ERC was estimated to have saved 10 million jobs and prevented thousands of businesses from closing.The ERC has also helped to boost consumer spending and investments, which have contributed to economic recovery.
> > Click Here to Find Out if You Are Eligible for ERC< <
Eligibility
The Employee Retention Credit (ERC) can be claimed by businesses that have suffered a decline in gross sales or been suspended because of a COVID-19 government order.
The test for a decline in gross receipts is the main difference between 2020 and 2021 ERC.In 2020, an enterprise must have suffered a significant drop in gross receipts that is at least 50 percent less than the same period in the previous calendar year.In 2021, the business must have suffered from a significant fall in gross sales of at least 20% when compared to same quarter in previous year.
Business Qualifications
Business can qualify in two ways for the ERC
- Fully or partially suspended by a government order: A business that has been fully or partially suspended by a government order due to COVID-19 is eligible for the ERC.This includes businesses that have been ordered to close, operate at a reduced capacity, or follow certain restrictions.
- Significant decline of gross receipts. A business which has seen a significant fall in its gross receipts because of COVID-19, is also eligible to receive the 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.
Example Scenarios
The following are some scenarios and examples that will help you understand each eligibility criteria.
Full or partial suspension by government order
- 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 may be available for a retailer that suffers a drop of 50% in sales caused by COVID-19.
- ERCs are available for manufacturers that cannot operate at their full capacity as a result of disruptions in supply chains.
> > Click Here to Find Out if You Are Eligible for ERC< <
Credit Amount
Employee Retention credit (ERC), a tax-credit that businesses can claim, is for wages paid to qualified employees during the COVID-19 epidemic.The credit amount varies according to the quarter and number of employees of a business.
For 2020, a credit equal to 50 percent of wages paid to qualified employees is available up to a limit of $10,000.This could mean that an employer can get a credit up to $5,000 for 2020.
The credit for the first three quarters of 2021 is 70% of the qualified wages paid by employees. This maximum amount per employee per quarter is $10,000.This means a company could receive a credit for up to $7,000 for each employee per quarter in the first three months of 2021. The total for the entire year is up to $21,000.
> > Click Here to Find Out if You Are Eligible for ERC< <
Claim the Credit
How to Claim ERC on Federal Employment Tax Returns
For businesses to claim Employee Retention Credit on federal employment taxes, they must amend Form 941X – Adjusted Employer’s quarterly Federal Tax Return (or Claim for refund) – in order to do so, they will need to file Form 941X.This form is applicable to any quarter during which the business qualifies for the credit.
Claim the ERC by Claiming it in Advance
Businesses have three options to claim the ERC.
- Claim your credit in Advance: Businesses can take advantage of the credit by reducing deposits made quarterly for employment tax.To do this, business must file IRS Form 7220, Advance Payment for Employer Credits & Taxes.
- Reduce employment tax deposits: Businesses can also reduce their quarterly employment tax deposits by the amount of the credit they expect to receive.Businesses can do this by filing Form 941 and indicating how much they will reduce their quarterly employment tax deposits.
- Businesses who have already paid employment taxes may request a credit refund by filing IRS Form 941X.
Calculating the Credit Amount and Avoiding Double-dipping with Other Relief Programs
The ERC is calculated as the product of the employee’s qualified wage multiplied by the applicable credit rates.The credit rate is 50% for 2020 and 70% for the first three quarters of 2021.
Businesses should be careful to avoid double-dipping with other relief programs.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
Businesses should keep detailed records detailing all qualified wages paid by employers to employees over the ERC.This will assist businesses in accurately calculating the amount they are entitled for as well as supporting their claim if the IRS audits it. Difference Between Refundable And Nonrefundable Employee Retention Credit
Here are a couple of tips to help you with your recordkeeping:
- Keep a record of all your payroll documents, such as W-2 forms and 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 government orders affecting your business.
The IRS offers many resources for businesses to claim the ERC. This includes FAQs and fact sheets.Businesses can contact IRS for help by calling 1-800-829-1040.
> > Click Here to Find Out if You Are Eligible for ERC< <
Examples of Eligible Businesses
Businesses that are affected by COVID-19 can receive the Employee Retention (ERC).These are some examples of businesses who may qualify for the Employee Retention Credit.
- Restaurants are forced to close by government order
- Retail shops that have experienced a substantial decline in sales
- Disruptions in the supply chains prevent manufacturers from working at full capacity
- Donations for nonprofit organizations are down
- Hotels and other hospitality businesses
- Travel and tourism business
- Entertainment and event businesses
- Personal care businesses
- Fitness studios and gyms
- Salons and spas
- Retail stores selling non-essential goods
- Businesses required to operate under reduced capacity
- Businesses that are forced to implement new safety protocols
- Costs incurred by businesses as a result of COVID-19
ERCs may be awarded to any business, including those that were fully or partially closed by a government order and/or experienced a significant decrease in gross receipts because of COVID-19. Difference Between Refundable And Nonrefundable Employee Retention Credit
Here are some examples of how companies have used the ERC in specific situations:
- A restaurant, which was forced to close due to an order from the government for a period of several months, was able use the ERC in order to keep their employees on the payroll.
- A retail store that experienced a 50% decline in sales due to COVID-19 was able to use the ERC to offset its payroll costs.
- ERC was used by a manufacturer that could not operate at full capacity due to disruptions in the supply chain to keep employees employed and continue production of essential goods.
- 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 an owner of a business and are unsure as to whether you are eligible for ERC, then I would encourage you contact a tax specialist.They can assist you in determining your eligibility, and claiming the credit, if you qualify.
> > Click Here to Find Out if You Are Eligible for ERC< <
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 may use aggressive marketing tactics to try to convince businesses to sign up for their services, even if the business is not eligible for the ERC.
Warning Signs and Red Flags
These warning signs will help you identify possible ERC scammers.
- They guarantee to refund your money without looking into your records.
- They charge high upfront fees or a percentage of your refund.
- They use high-pressure sales tactics. Difference Between Refundable And Nonrefundable Employee Retention Credit
- They do not belong to an organization that is reputable.
- Some companies will ask for personal or financial details upfront.
Reporting Suspicious Activities and Protecting Personal Information
You should contact the IRS if you receive a call from an ERC scammer.This can be done by calling 1-800-829-1040, or visiting the IRS’s website.
It is important to safeguard your personal and financial data.You should not provide your personal information to anyone contacting you uninvited.You can find reviews of a company online, or you can contact the IRS if you’re unsure.
> > Click Here to Find Out if You Are Eligible for ERC< <
Conclusion
In this article, the Employee Retention credit (ERC) is discussed. It’s a tax relief program that helps eligible employers retain their employees during the COVID-19 outbreak.We have outlined the ERC’s eligibility requirements, its claim process, as well as the possible scams.
We also have some tips and materials for documenting your 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 are an eligible employer, we encourage you to claim the credit and seek professional assistance if needed.
> > Click Here to Find Out if You Are Eligible for ERC< <
Employee Retention Bonus Frequently Answered Questions
Difference Between Refundable And Nonrefundable Employee Retention Credit
What is ERC?
The COVID-19 pandemic has impacted businesses. A refundable tax credit is available.
This credit is equal to 50% the wages paid by employees to qualified employees in 2020. And 70% of the wages paid by employees to qualified employees in their first three quarters in 2021.
Who is eligible for the ERC?
Eligible businesses for the ERC include those who experienced a significant decline in gross receipts or were fully or partially suspended due to government orders caused by the COVID-19 pandemic.
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 filed within three years of the date the original Form 941 was filed.
Do I have to pay back the ERC?
The ERC, however, is a non-refundable tax credit.
Can I claim the ERC if I received a PPP loan?
Yes, businesses can claim the ERC even if they received a PPP loan (Paycheck Protection Program).
Businesses cannot claim ERC for salaries that are also used as collateral to borrow PPP loans.
Can self employed individuals claim ERC benefits?
Yes, individuals who are self-employed can qualify for the ERC.
Schedule C forms can be claimed by individuals who are self-employed.
Can nonprofit organizations claim ERC?
Yes, nonprofits are eligible for ERC.
Nonprofits can claim ERC on Form 990 T.
Can companies that own a foreign affiliate claim ERCs?
Yes, businesses can claim the ERC for wages paid to employees of foreign subsidiaries.
That said, there are some additional requirements that must be met before they can claim it.
What are the common mistakes businesses make when they claim ERC?
There are a few common mistakes that businesses should avoid when claiming an ERC. These include but are not restricted to
- Wrong calculation on credit
- Include all wages that qualify
- Failure to amend Forms 901-X by deadline