COVID-19, a pandemic that has affected businesses of all types and sizes, has forced many to either lay off staff or close their business.There is one lifeline that can help businesses remain 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 is designed to help businesses keep their employees on payroll, even if they are unable to operate normally.
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 find out more about ERC and to claim, you can either visit the IRS web site, speak with an advisor, or check 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.
The Employee Retention CreditEmployee Retention Credit Doctors
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.
The ERC is available to businesses of all sizes, including tax-exempt organizations.To be eligible, a business must have experienced a significant decline in gross receipts or have been fully or partially suspended due to a COVID-19-related government order.
The ERC provides a financial boost for businesses that are affected by pandemic.The ERC can provide a significant financial boost to businesses that have been impacted by the pandemic.
Why was ERC created
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.
The ERC is a great way to boost the finances of businesses affected by pandemics.It can also help businesses retain their employees, which is essential for a quick recovery.
The ERC is also a refundable credit. This means that businesses are able to claim it, even if there are no taxes due.Businesses can also claim the ERC for qualified wages paid to employees who are not working due to COVID-19, such as employees who are furloughed or quarantined. Employee Retention Credit Doctors
Impact of ERCs on the Economy and Businesses
The ERC helped keep millions of Americans in employment during the COVID-19 Pandemic.The ERC has helped many businesses stay afloat during the COVID-19 pandemic.
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.
The main difference between the 2020 and 2021 ERC requirements is the gross receipts decline test.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, an organization must have suffered a significant drop in gross receipts by at least 20% from the same quarter the year before.
Businesses can qualify for the ERC in two ways:
- ERC eligibility for businesses suspended or suspended partially by a government.Businesses ordered to close, reduce capacity or comply with certain restrictions are eligible for ERC.
- Significant decline in gross revenues: Businesses that have experienced a significant drop in gross revenue due to COVID-19 are also 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
These examples and scenarios illustrate the criteria for each:
Fully or partially suspended by a government order:
- ERC may be available for a restaurant that has to close because of a government directive.
- A gym that is required to operate at a reduced capacity due to a COVID-19-related government order is eligible for the ERC.
Significant decline in gross receipts:
- ERC can be awarded to a retail store that has experienced a 50% decrease in sales because of COVID-19.
- ERCs are available for manufacturers that cannot operate at their full capacity as a result of disruptions in supply chains.
Employee Retention Tax Credit (ERC), is a credit for businesses that can be claimed on qualified wages paid by employers to their employees during COVID-19.The credit amount varies according to the quarter and number of employees of a business.
The credit for 2020 is equal 50% of the wages qualified to be paid to employees. This maximum can reach $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.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.
Claim your Credit
How to Claim the ERC when Filing 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 filed for any quarter in which the business was eligible for the credit.
Claim the ERC in Advance
There are three options available to businesses for claiming 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.
- Businesses can reduce their quarterly deposits for employment tax by the amount they anticipate receiving.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
Multiplying qualified wages by the credit rate applicable, the ERC can be calculated.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 Documenation
Businesses must keep detailed records on all wages paid during 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 Doctors
Here are some tips on recordkeeping and documentation.
- All payroll records should be kept, including W-2s and Forms 941s.
- Keep track at all times of employee hours, including vacation, sick and holiday leave.
- Keep track of every wage paid to an employee, including the base salary, bonuses, and overtime.
- Keep track of any government orders that affected the business’s operations.
The IRS offers a number of resources that can help businesses claim their ERC. These include FAQs, factsheets, and videos.Businesses can also call 1-800-829-1040 to get help from the IRS.
Examples of Eligible Businesses
The Employee Retention Credit (ERC) is available to businesses that have been impacted by the COVID-19 pandemic.Below are some business examples that may be eligible for Employee Retention Credit.
- Restaurants forced to shut down due to government order
- Retail stores which experienced a significant decrease in sales
- Manufacturing companies are unable to reach full capacity because of supply chain disruptions
- Donations to nonprofit organizations have declined
- Hotels and hospitality businesses
- Travel and Tourism Businesses
- Entertainment and event businesses
- Personal care businesses
- Fitness studios and gyms
- Salons and spas
- Retail shops selling non-essential items
- Businesses that had to operate on a lower capacity
- Businesses forced to adopt new safety protocols and measures
- Businesses that have experienced an increase in costs as a result COVID-19
These examples are not the only ones that qualify. Any business that has been suspended in whole or part by an order of government or that has seen a decline in gross sales due to COVID-19 could also be eligible. Employee Retention Credit Doctors
Here are some examples of how companies have used the ERC in specific situations:
- 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.
- A nonprofit that saw their donations decrease due to COVID-19, was able to utilize the ERC and keep its employees employed to continue to provide vital 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.They can determine your qualification and help you claim the credit.
ERC Scams, Aggressive Marketing and Other Risks
Unfortunately, some scammers take advantage of companies that qualify for the Employee Retention Credit.Scammers will use aggressive marketing techniques to get businesses to sign up, even if they are not eligible for ERC.
Red Flags and Warning Signs
There are warning signs that could indicate an ERC scammer.
- They promise to get you a refund without reviewing your records.
- The fees are high, or they take a large percentage of the refund.
- Sales tactics are high-pressure. Employee Retention Credit Doctors
- They are not affiliated with a reputable tax professional organization.
- Some companies will ask for personal or financial details upfront.
Reporting Suspicious Actors and Protecting Your Personal Information
If you’re contacted by an ERC con artist, then you should report their activity to IRS.Call 1-800-829-1040 to report the scam or visit the IRS website.
It is important to safeguard your personal and financial data.Do not give your personal information to anyone who contacts you unsolicited.You can find reviews of a company online, or you can contact the IRS if you’re unsure.
We have covered the Employees Retention (ERC) Credit in this article. This is a tax credit program that helps employers who qualify to retain their staff during the COVID-19 pandemic.We have explained the eligibility requirements, the claiming process, and the potential scams related to the ERC.
We have also provided tips and resources on recordkeeping and documentation.The ERC can be a valuable benefit for employers, helping them reduce their employment taxes, improve their cashflow, and support their employees.If you’re an eligible employer, you should claim the credit. You can also seek professional advice if you need it.
Frequently Asked Questions about Employee Retention Credits
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What is ERC?
Businesses that have been affected by the COVID-19 epidemic can claim a refundable credit.
This credit is equal in value to 50% of wages qualified to be paid in 2020. It is also equal in value to 70% of wages qualified to be paid in the first 3 quarters of 2021.
Who can receive the ERC?
Eligible companies for the ERC are those businesses that experienced a significant fall in gross sales or were partially or completely suspended because of government orders triggered by the COVID-19 outbreak.
What is a qualified wage?
The wages that qualify as wages include salaries, wages, tips, and bonuses.
Health insurance premiums paid by the employer are also considered qualified 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 repay my ERC?
No, the ERC is a refundable tax credit, which means that businesses do not need to repay it.
Can I claim the ERC if I received a PPP loan?
Yes, even if you have received a Loan Protection Program (PPP) for your business.
Businesses cannot claim the ERC for wages that were also used to claim the PPP loan.
Can self-employed people claim the ERC?
Yes, self-employed individuals are eligible for the ERC.
Schedule C forms can be claimed by individuals who are self-employed.
Can nonprofit organizations claim ERC?
Yes, nonprofit organizations are eligible for the ERC.
Nonprofit organizations can claim the ERC on their Form 990-T form.
Can companies that own a foreign affiliate claim ERCs?
Businesses can claim ERC for the wages they pay to foreign-based employees.
It is important to note that there are additional requirements for claiming the tax credit.
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
- Calculation error on credit
- Include all wages that qualify
- The failure to amend Form 941-X in time.