The COVID-19 epidemic has caused havoc in businesses of all sizes. Many have been forced to close or lay off their employees.But there is a lifeline available to help businesses stay afloat: the Employee Retention Credit (ERC).
The ERC is a refundable tax credit that businesses can claim on qualified wages paid to employees during the pandemic.It was designed to encourage businesses to continue to pay their employees even if normal operations are not possible.
If you are a business owner who has been impacted by the pandemic, the ERC can help you keep your employees on board and your business afloat.To learn more about the ERC and how to claim it, visit the IRS website, speak with a 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.
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The Employee Retention CreditEmployee Retention Credit Cpe Course
Employee Retention credit (ERC), a refundable income tax credit, is available to businesses for wages paid by them during the COVID-19 epidemic.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 are available to all businesses, even tax-exempt ones.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 be used to help businesses keep their employees, cover their payroll costs and invest for the 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 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
The ERC is a great way to boost the finances of businesses affected by pandemics.The ERC can help businesses retain employees, which is crucial for a rapid recovery.
The ERC, which is a tax credit that is claimed even by businesses who do not owe a dime in taxes, is refundable.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 Cpe Course
Impact of ERC on Business and the Economy
The ERC is credited with keeping millions of Americans at work during the COVID-19 outbreak.It also helped businesses weather the storm and stay afloat.
ERC saved 10 million jobs. Thousands of businesses were prevented from closing.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 primary difference between ERC requirements for 2020 and 2021 is a test of gross receipts decline.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, 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
The ERC is available to businesses in two different ways.
- ERC eligibility is based on whether the business has been suspended completely or in part due to COVID-19.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: A business that has experienced a significant decline in gross receipts due to COVID-19 is also eligible for the ERC.Significant declines in revenue are defined as a decrease of at minimum 50% in 2020 quarters or at most 20% in 2021 quarters compared to same quarters the year before.
Examples and Scenarios
Below are examples and scenarios that illustrate each of the eligibility criteria:
An order of the government may suspend all or part of a program.
- ERC can be claimed by a restaurant forced to shut down due to an order from the government.
- 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.
- ERC can be awarded to a manufacturer who cannot operate at full capability due to disruptions to the supply chain.
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Credit Amount
Employee Retention Credit is a tax deduction that businesses may claim on wages they paid employees in the COVID-19 pandemic.The amount varies depending on how many employees are employed and what quarter it is.
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.
For the three first quarters of the year 2021, the credit is equal to 70% of the wages qualified to be paid. There is a limit of $10,000 per employee per quarter.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 ERC for 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 be submitted for any quarter where the business was entitled to the credit.
Options for Claiming the ERC in Advance
There are three options available to businesses for claiming ERC:
- Claim credit in advance. Businesses can claim credit in advance by reducing their quarterly deposits for employment tax.To do this, businesses must file Form 7200, Advance Payment of Employer Credits and Taxes, with the IRS.
- 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 Amount of the Credit 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.Credit rate is set at 50% for 2020 and 70% for the three first quarters of 2021.
Avoid double-dipping when it comes to other relief programs.Businesses cannot, for example, claim the ERC on wages they also claim as part of the Paid Family Medical Leave Credit and the Work Opportunity Tax Credit.
Tips and Resources for Recordkeeping and Documenation
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 Cpe Course
Here are some helpful tips on documenting your records and documents:
- Keep a record of all your payroll documents, such as W-2 forms and 941s.
- Keep track at all times of employee hours, including vacation, sick and holiday leave.
- Keep track of all the wages that employees receive, including overtime, bonuses, and base wages.
- Track any government orders which may have an impact on the business.
IRS provides various resources, such as fact sheets and videos, to help businesses claim the ERC.Businesses can also contact the IRS for assistance by calling 1-800-829-1040.
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Examples of Eligible Businesses
The Employee Retention Credit (ERC) is available to businesses that have been impacted by the COVID-19 pandemic.The following are examples of businesses that may be eligible for the Employee Retention Credit (ERC):
- Restaurants forced to shut down due to government order
- Retail stores who experienced a significant drop in sales
- Manufacturing companies are unable to reach full capacity because of supply chain disruptions
- Donations to nonprofit organizations have declined
- Hotels and other hospitality businesses
- Travel and tourism business
- Entertainment and event businesses
- Personal care businesses
- Fitness studios and gyms
- Salons and spas
- Stores that sell non-essential merchandise
- Businesses that have been required to operate in a reduced capacity
- Businesses that were forced to implement new safety measures and protocols
- Businesses that experienced increased costs due to COVID-19
The ERC may also be available to businesses that were suspended or partially by government orders or experienced a substantial decline in gross revenues due to COVID-19. Employee Retention Credit Cpe Course
Here are some examples that show how businesses have used ERCs:
- 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 that experienced a 50% decline in sales due to COVID-19 was able to use the ERC to offset its payroll costs.
- A manufacturer that was unable to operate at full capacity due to supply chain disruptions was able to use the ERC to keep its employees on payroll and continue to produce essential goods.
- An organization that had seen its donations drop due to COVID-19 could use the ERC in order to keep their employees on the payroll and continue to offer essential services.
If you own a company and are not sure if you are eligible, I recommend that you contact a qualified tax professional.They can help you to determine your eligibility and to claim the credit if you are eligible.
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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 can use aggressive marketing strategies to convince companies to sign-up for their services even when they are not eligible to receive the ERC.
Red Flags and Warning Signs
Here are some warnings and red flags for identifying potential ERC fraudsters:
- They guarantee to refund your money without looking into your records.
- You will be charged high fees upfront, or a percentage of your refund.
- High-pressure sales tactics are used. Employee Retention Credit Cpe Course
- They do not belong to an organization that is reputable.
- You will be asked to provide your personal information or financial details upfront.
Reporting Suspicious Actors and Protecting Your Personal Information
You should contact the IRS if you receive a call from an ERC scammer.You can do this by calling 1-800-829-1040 or by visiting the IRS website.
Also, you should be cautious about protecting your financial and personal data.Never give out personal information to someone who contacts you without your permission.If you have any doubts about the legitimacy of a business, you can look at their online reviews or ask for help from 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 discussed eligibility requirements, claiming processes, and possible scams related the ERC.
We also have some tips and materials for documenting your records.The ERC offers employers a valuable opportunity to reduce their tax liabilities, improve cash flow and support the workforce.If you are eligible, we encourage to claim credit. Professional assistance may be needed if required.
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Employee Retention Credit: Frequently Asked Questions
Employee Retention Credit Cpe Course
What is ERC?
The COVID-19 pandemic has impacted businesses. A refundable tax credit is available.
This credit equals 50% of the qualified wages that employees received in 2020, and 70% of the qualified wages they receive in the first quarter of 2021.
Who can apply for the ERC program?
Eligible business for the ERC includes those who suffered a significant reduction in gross receipts due to government order caused by COVID-19.
What are qualified wages?
Included in qualifying wages are wages, salaries, and tips paid to employees.
Also, health insurance premiums that employers pay are considered wages.
How do I claim ERC?
Businesses can claim ERC by submitting an amended Form 941 to 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 ERC if I received a loan from PPP?
Businesses can still claim the ERC if they have received a Paycheck Protection Program (PPP) loan.
Businesses cannot claim ERCs for wages they also claimed as PPPs.
Can self-employed individuals claim ERC?
Yes, self-employed individuals are eligible for the ERC.
Self-employed persons can claim ERC by completing Schedule C.
Can non-profit organizations claim ERC?
Yes, organizations that are not for profit can qualify for the ERC.
Nonprofits may claim ERCs on their Form 990T.
Can companies with a foreign subsidiary claim ERC?
Businesses can claim ERC for the wages they pay to foreign-based employees.
However, they must also meet certain additional requirements before they are eligible to claim the benefits.
Are there mistakes that companies make in claiming ERCs?
The following are some common mistakes to avoid by businesses when claiming the ERC:
- Credit calculation error
- The failure to include all qualifying wages
- Failure to amend form 941 – X on time.