The COVID-19 virus has wreaked havoc across all businesses, forcing some to shut their doors or layoff employees.Employee Retention (ERC) Credit is available to businesses that need it.
The ERC allows businesses to claim a tax credit on wages paid during a pandemic.It is designed to help businesses keep their employees on payroll, even if they are unable to 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 CreditEmployee Retention Credit 2023 Deadline
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 created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March 2020 to help businesses keep their employees on the payroll, even if they were unable to operate normally.
ERC is open to businesses and organizations of all sizes.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.
ERCs can be a major financial boost for companies that have suffered from pandemic effects.It can assist businesses in retaining their employees, covering payroll costs, as well as investing in their future.
Why was ERC formed?
The COVID-19 outbreak caused an economic slump that led many businesses, including small and large ones, to either lay off staff or shut down.The ERC was established to assist businesses in keeping their employees employed so they can quickly reopen, resume normal operations and regain control of the situation once the pandemic has subsided.
ERC Benefits
ERCs can give businesses impacted by pandemics a financial boost.The ERC can help businesses retain employees, which is crucial for a rapid recovery.
The ERC is a refundable tax credit, meaning that businesses can claim it even if they do not owe any taxes.Businesses may also claim ERCs on qualified wages for employees who cannot work because of COVID-19. These employees include those who are furloughed. Employee Retention Credit 2023 Deadline
The Impact of the ERC in the Business and 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.
The ERC is estimated to have saved over 10 million jobs and prevented hundreds of thousands of businesses from closing their doors.The ERC has also helped to boost consumer spending and investments, which have contributed to economic recovery.
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Eligibility
The primary difference between ERC requirements for 2020 and 2021 is a test of gross receipts decline.In order to qualify for the 2020 ERC, businesses must have had a substantial decline in gross revenues of at least half compared with the same quarter last year.In 2021 a business will have to experience a significant decrease in gross revenues of at least 20 percent compared with the same quarter last year.
Business Qualifications
Business can qualify in two ways for the ERC
- ERC for a business suspended fully or partly by a Government Order: An ERC can be awarded to a business that is suspended either completely or partially by an order of the government due COVID-19.The ERC is available to businesses that have been told to close or operate at reduced capacity.
- 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 Receipts: A business that has experienced a significant decline in its gross receipts due to COVID-19 is also eligible for the ERC.
Example Scenarios
These examples and scenarios illustrate the criteria for each:
Fully or partially suspended by a government order:
- ERC will cover a restaurant which is forced to close down by government orders.
- ERC eligibility is granted to a gym that must operate at a lower capacity as a result of a government order relating to COVID-19.
Significant decline in gross receipts:
- A retail store that experiences a 50% decline in sales due to COVID-19 is eligible for the ERC.
- A manufacturer that is unable to operate at full capacity due to supply chain disruptions is eligible for the ERC.
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Credit Amount
The Employee Retention Credit (ERC) is a tax credit that businesses can claim for qualified wages paid to employees during the COVID-19 pandemic.The amount varies depending on how many employees are employed and what quarter it is.
In 2020, the credit will be equal to half of all wages that employees are entitled to receive up to $10,000.This means a company could receive up to a $5,000 credit per employee in 2020.
For the first three quarters of 2021, the credit is equal to 70% of qualified wages paid to employees, up to a maximum of $10,000 per quarter per employee.A business could receive credit up to $7000 per employee, per quarter for the three first quarters of the year 2021.
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Claim your Credit
How to Claim the ERC on Federal Employment Tax Returns
Businesses that wish to claim the Employee Retention credit (ERC), on their federal employment tax returns must use Form 941-X, Revised Employer’s Quarterly Tax Return, or Claim for Refund.This form can also be filed for any other quarters in which a business may have been eligible for credit.
Claim the ERC in Advance
Businesses can claim the ERC in three ways:
- Claim it in advance. Businesses are able to claim the credit before the quarter’s end by reducing quarterly employment taxes.Businesses must submit Form 7200 to the IRS, Advance Payments of Employer Taxes and Credits.
- Businesses may also reduce their quarterly tax deposits on employment by the credit amount they expect.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 amount of the ERC is calculated by multiplying the qualified wages paid to employees by the applicable credit rate.The credit rates for 2020 are 50% and 70% in the first 3 quarters of 2021.
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
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. Employee Retention Credit 2023 Deadline
Here are some tips for recordkeeping and documentation:
- Keep copies of all payroll records, including Forms 941 and W-2s.
- Keep track of all hours worked by employees, including vacation, sick, and holiday time.
- Track all employee wages, including bonuses, overtime, and base pay.
- Keep track of all government orders that affect your business.
IRS provides various resources, such as fact sheets and videos, to help businesses claim the ERC.Businesses can contact IRS for help by calling 1-800-829-1040.
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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 which experienced a significant decrease in sales
- Supply chain disruptions prevent manufacturers from operating at full capacity
- Donations for nonprofit organizations are down
- Hotels and hospitality businesses
- Travel and Tourism Businesses
- Entertainment and Event Businesses
- Personal care businesses
- Gyms & fitness studios
- Salons and spas
- Retail stores that sell non-essential products
- Businesses that were required to operate at a reduced capacity
- Businesses forced to adopt new safety protocols and measures
- Businesses that have experienced an increase in costs as a result COVID-19
In addition to these examples, any business that was fully or partially suspended by a government order or that experienced a significant decline in gross receipts due to COVID-19 may be eligible for the ERC. Employee Retention Credit 2023 Deadline
Below are some specific examples on how businesses have utilized the ERC.
- A restaurant that was forced to close for several months due to a government order was able to use the ERC to keep its 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 allows a company to maintain its workforce and produce essential products despite being unable to run at full capacity.
- A nonprofit organization that saw its donations decline due to COVID-19 was able to use the ERC to keep its employees on payroll and continue to provide essential services.
Contact a tax expert if you’re a business owner who is unsure if you qualify for the ERC.They can assist you in determining your eligibility, and claiming the credit, if you qualify.
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Avoiding Scams
ERC Scams, Aggressive Marketing and Other Risks
Unfortunately, there are scammers who are trying to take advantage of businesses that are eligible for the Employee Retention Credit (ERC).These scammers use aggressive marketing to convince businesses to subscribe to their services even if that business isn’t eligible for the Employee Retention Credit (ERC).
Warning Signs and Red Flags
These warning signs will help you identify possible ERC scammers.
- They will refund you without looking at your records.
- You will be charged high fees upfront, or a percentage of your refund.
- The salespeople are aggressive and use high-pressure tactics. Employee Retention Credit 2023 Deadline
- They aren’t affiliated with an established tax professional association.
- 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.
Protecting your financial and personal information is also important.Don’t give out your personal details to anyone who contacts without asking.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 discussed the Employees Retention Credit, tax-relief program that assists eligible employers in keeping their employees on the payroll during the COVID-19 epidemic.We have explained the eligibility requirements, the claiming process, and the potential scams related to the ERC.
We’ve also included some resources and advice on recordkeeping.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:
Employee Retention Credit 2023 Deadline
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 include those who have seen a significant decrease in gross revenues or have been suspended fully or partly due to government orders resulting from the COVID-19 Pandemic.
What is a qualified wage?
Included in qualifying wages are wages, salaries, and tips paid to employees.
Health insurance premiums paid by the employer are also considered qualified wages.
How do I claim the ERC?
The IRS will accept amended Forms 941 and 941-X from businesses to claim the ERC.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?
No, it is a refundable credit.
Can I claim the ERC if I received a PPP loan?
Businesses can still claim the ERC if they have received a Paycheck Protection Program (PPP) loan.
Businesses cannot claim the ERC for wages that were also used to claim the PPP loan.
Can self-employed people claim the ERC?
Yes, individuals who are self-employed can qualify for the ERC.
Schedule C forms can be claimed by individuals who are self-employed.
Can non-profit organizations claim ERC?
Yes, non-profit organizations are eligible to apply for ERC.
Nonprofits may claim ERCs on their Form 990T.
Can companies with a foreign subsidiary claim ERC?
Yes, employers can claim ERC when they pay wages to foreign employees.
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?
There are a few common mistakes that businesses should avoid when claiming an ERC. These include but are not restricted to
- Incorrect credit calculation
- Include all wages that qualify
- Failure to amend Forms 901-X by deadline