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’s designed to help employers keep their employees, even if the business is unable to function 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.
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The Employee Retention CreditEmployee Retention Credit Frequently Asked Questions
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 in March of 2020 by the Coronavirus Aid, Relief, and Economic Security Act to help employers keep their workers on the payroll, despite the fact that they may not have been able 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.
Businesses that have been affected by this pandemic can receive a substantial financial boost from the ERC.It can be used to help businesses keep their employees, cover their payroll costs and invest for the future.
Why was ERC created
The COVID-19 pandemic triggered a severe economic recession, forcing many companies to layoff their employees or close 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
The ERC can provide a significant financial boost to businesses that have been impacted by the pandemic.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 can claim the ERC on wages paid to employees that are not working because of COVID-19. This includes employees who have been furloughed, quarantined, or are otherwise not allowed to work. Employee Retention Credit Frequently Asked Questions
Impact of the ERC on Businesses and the Economy
The ERC kept millions of Americans employed throughout the COVID-19 epidemic.It has also helped businesses to stay afloat and weather 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.It has also contributed to the economic recovery by boosting consumer spending and investment.
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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 a business’s gross receipts must have declined by at least 50% from the same quarterly period of the previous year.In 2021, a business must have experienced a significant decline in gross receipts of at least 20% compared to the same quarter in the previous year.
Business Qualifications
Business can qualify in two ways for the ERC
- ERC is available to businesses that have been suspended in whole or part by government orders 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 drop in gross sales: A business experiencing a significant loss in gross sales due to COVID-19 can also apply for 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.
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.
- A restaurant that is forced to close due to a government order is eligible for the ERC.
- 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 can be awarded to a retail store that has experienced a 50% decrease in sales because 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 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 amount of the credit is dependent on the business’s quarter and employees.
In 2020, the credit will be equal to half of all wages that employees are entitled to receive up to $10,000.For 2020, a business may receive a maximum credit of $5,000 per employee.
For the first quarters of 2021, the credit equals 70% of wages that are qualified. However, this is limited to $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 the Credit
How to Claim ERC in Federal Employment Taxreturn
To claim the Employee Retention Credit (ERC) on federal employment tax returns, businesses must file an amended Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.This form can be submitted for any quarter where the business was entitled to the credit.
Claim the ERC by Claiming it in Advance
Businesses have three options for claiming the ERC:
- Claim the credit in advance: Businesses can claim the credit in advance by reducing their quarterly employment tax deposits.To do so, businesses need to file IRS Form 7200, Advanced Payment of Employer credits and taxes.
- Businesses can reduce their quarterly deposits for employment tax by the amount they anticipate receiving.To do so, businesses must fill out Form 941 at the IRS. They will need to indicate how much credit they intend to reduce.
- Request a refund: Businesses that have already paid their employment taxes can request a refund of the credit by filing Form 941-X with the IRS.
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.Credit rates are 50% in 2020 and 70% during the first three-quarters of 2021.
Businesses should be aware of the dangers of double-dipping.For example, businesses can’t claim the ERC if they are also claiming the Paid Family Leave Credit or 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 help businesses to accurately calculate the amount of the credit they are eligible for and to support their claim if it is audited by the IRS. Employee Retention Credit Frequently Asked Questions
Here are some tips on recordkeeping and documentation.
- All payroll records should be kept, including W-2s and Forms 941s.
- Keep track of every employee’s hours, including sick time, holiday, and vacation.
- Keep track of the wages you pay to your employees. This includes base wage, bonuses, and overtime pay.
- Keep track of any government orders that affected the business’s operations.
The IRS provides a variety of resources to help businesses claim the ERC, including FAQs, fact sheets, and videos.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 are forced to close by 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 enterprises
- Travel and tourism businesses
- Entertainment and event businesses
- Personal care businesses
- Gyms, fitness studios
- Salons & spas
- Retail shops selling non-essential items
- Businesses required to operate under reduced capacity
- Businesses forced to comply with new safety 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 Frequently Asked Questions
Here are some examples that show how businesses have used ERCs:
- 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 outlet that suffered a 50% sales decline due to COVID-19, was able to use ERC to offset their 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 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.
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Avoiding Scams
ERC Scams, Aggressive Marketing and Other Risks
Unfortunately, scammers try to take advantage businesses who 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
Here are some warning signals and red flags that can help you to identify ERC scammers.
- They promise you will get a refund even if they don’t review your records.
- You will be charged high fees upfront, or a percentage of your refund.
- They use high-pressure sales tactics. Employee Retention Credit Frequently Asked Questions
- They aren’t affiliated with an established tax professional association.
- You will be asked to provide your personal information or financial details upfront.
Reporting Suspicious Activity and Protecting Personal Data
If you are contacted by an ERC scammer, you should report the activity to the IRS.You can report this activity by calling 1-800-829-1040.
Protecting your financial and personal information is also important.Do not share your personal data with anyone who contacts uninvited.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, 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 discussed the ERC eligibility requirements, claim process and potential scams.
We have also provided tips and resources on recordkeeping and documentation.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.
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Employee Retention Bonus Frequently Answered Questions
Employee Retention Credit Frequently Asked Questions
What is ERC?
Businesses affected by COVID-19 can apply for a refundable income tax credit.
This credit is equal 50% of qualified wage paid to employees for 2020 and 70% qualified wage paid to employees during the first three-quarters of 2021.
Who is eligible for ERC funding?
Eligible business for the ERC includes those who suffered a significant reduction in gross receipts due to government order caused by COVID-19.
What is qualified wage?
Wages, salaries, tips, and bonuses are all included in the definition of a qualified wage.
Employer-paid health insurance premiums also qualify as wages.
How do I claim the ERC?
The IRS allows businesses to claim ERCs if they file an amended Form 951, or Form 951,-X.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, however, is a non-refundable tax credit.
Can I claim ERC even if I have received a PPP Loan?
Yes, even if you have received a Loan Protection Program (PPP) for your business.
Businesses cannot claim ERCs for wages they also claimed as PPPs.
Can self-employed individuals claim the ERC?
Yes, self-employed individuals are eligible for the ERC.
Schedule C is the form that self-employed people can use to claim their ERC.
Can nonprofit organizations claim ERC?
Yes, nonprofit organizations are eligible for the ERC.
Nonprofits can claim ERC on Form 990 T.
Can companies that own a foreign affiliate claim ERCs?
Yes, employers can claim ERC when they pay wages to foreign employees.
There are a few additional requirements to meet before you can claim the benefit.
Are there any common mistakes made by businesses when claiming ERC that they should be on the lookout for?
When claiming your ERC; businesses must be aware of the following mistakes:
- Calculation error on credit
- Include all wages that qualify
- Failure to amend Forms 901-X by deadline