The COVID-19 epidemic has caused havoc in businesses of all sizes. Many have been forced to close or lay off their employees.Employee Retention Bonus (ERB) is a way to keep businesses afloat.
The ERC is an refundable tax credit which businesses can claim for wages that were paid to their employees during the pandemic.It was designed to encourage businesses to continue to pay their employees even if normal operations are not possible.
The ERC may be able to help keep your employees and business afloat if your company has been impacted.Visit the IRS website to learn more about ERCs and how you can claim them. You can also speak with a tax adviser or read the following.
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 Kansas
The Employee Retention Credit (ERC) is a refundable tax credit that businesses can claim for qualified wages paid to employees during the COVID-19 pandemic.It was established by the Coronavirus Aid, Relief, and Economic Security Act in March 2020 in order to help businesses retain their employees, even if it meant they could not operate normally.
ERC is open to businesses and organizations of all sizes.A business must be eligible if it has experienced a significant drop in gross receipts, or if they have been suspended or fully suspended because of a COVID-19 related government order.
Businesses that have been affected by this pandemic can receive a substantial financial boost from the ERC.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 is designed to help keep businesses open and their employees working so that they can resume normal operations as soon as the pandemic subsides.
Benefits of the ERC
ERCs can give businesses impacted by pandemics a financial boost.It can also be used to retain staff, which is important for a swift 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 Kansas
Impact of ERC on Business 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.
ERC saved 10 million jobs. Thousands of businesses were prevented from closing.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 2020, a business must have experienced a significant decline in gross receipts of at least 50% compared to the same quarter in 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 eligibility is based on whether the business has been suspended completely or in part due to COVID-19.Businesses ordered to close, reduce capacity or comply with certain restrictions are eligible for 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.A significant decline in gross receipts is defined as a decline of at least 50% in a quarter in 2020 or at least 20% in a quarter in 2021 compared to the same quarter in the previous year.
Examples and Scenarios
Here are some examples and scenarios to illustrate each eligibility criterion:
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 is available to retail stores that experience a 50% drop in sales as a result of 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 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 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.For 2020, a business may receive a maximum credit of $5,000 per employee.
Credits are equal to 70% of qualified wages for the first 3 quarters of 2020, with a maximum per employee of $10,000.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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Claiming the Credit
How to Claim the ERC when Filing Federal Employment Tax Returns
Businesses must amend Form 941X, Adjusted Employer’s Quarterly Federal Income Tax Return or Claim For Refund, to claim the Employee retention credit (ERC) in federal employment tax returns.This form may be used for any quarter that the business is eligible for the credit.
Options for Claiming the ERC in Advance
Businesses have three options to claim the ERC.
- Claim it in advance. Businesses are able to claim the credit before the quarter’s end by reducing quarterly employment taxes.To do this, businesses must file Form 7200, Advance Payment of Employer Credits and Taxes, with the IRS.
- Reduce employment tax deposits: Businesses can also reduce their quarterly employment tax deposits by the amount of the credit they expect to receive.To reduce the deposits, businesses need to file IRS Form 941 and include the amount of credit that they expect to receive.
- Businesses can ask for a refund if they have already paid the employment tax. They should file Form 941-X at the IRS.
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 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.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 Documentation
Keep detailed records for all wages that were paid to employees in the ERC period.This will enable businesses to accurately determine the amount of credit that they are eligible for, and to back up their claim should it be audited. Employee Retention Credit Kansas
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.
- Keep track of all wages paid to employees, including base wages, bonuses, and overtime pay.
- 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):
- Government orders force restaurants to close
- Retail stores that experienced a significant decline in sales
- Manufacturers unable to operate at full capacity due to supply chain disruptions
- Donations to nonprofit organizations have declined
- Hotels and other hospitality enterprises
- Travel and tourism business
- Entertainment and Event Businesses
- Personal care businesses
- Gyms & fitness studios
- Salons, spas
- Retail stores that sell non-essential products
- Businesses that had to operate on a lower capacity
- Businesses who are required to implement new safety standards and protocols
- Businesses that experienced increased costs due to 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 Kansas
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.
- 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 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 that try to take advantage business owners who are eligible for Employee Retention Credits (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.
Warning Signs and Red Flags
Here are some warning signs and red flags to identify potential ERC scammers:
- They promise to get you a refund without reviewing your records.
- The fees are high, or they take a large percentage of the refund.
- They use high-pressure sales tactics. Employee Retention Credit Kansas
- They are not affiliated to a reputable organization of tax professionals.
- You will be asked to provide your personal information or financial details upfront.
Reporting Suspicious Activities and Protecting Personal Information
If you have been contacted by an ERC scammer , you should notify the IRS .You can call 1-800-829-1040 for more information or go to the IRS web site.
You should also be careful to protect your personal and financial information.You should not provide your personal information to anyone contacting you uninvited.If you want to know if a particular business is legit, check online reviews. Or contact the IRS.
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Conclusion
This article has discussed the Employee retention credit (ERC), which is a tax relief that allows eligible employers to keep their employees employed during the COVID-19 Pandemic.We have outlined the ERC’s eligibility requirements, its claim process, as well as the possible scams.
Also, we have provided some resources and tips for documenting and keeping 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’re an eligible employer, you should claim the credit. You can also seek professional advice if you need it.
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Employee Retention Credit Frequently Asked Questions:
Employee Retention Credit Kansas
What is ERC?
It is a refundable tax credit available to businesses that were impacted by the COVID-19 pandemic.
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 is eligible for ERC funding?
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 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?
The IRS will accept amended Forms 941 and 941-X from businesses to claim the ERC.The amended 941-X form must be filed in three years following the original 941 filing date.
Do I need to repay the ERC?
No, the ERC is a refundable tax credit, which means that businesses do not need to repay it.
Can I claim ERC even if I have received a PPP Loan?
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 benefits?
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 non profit organizations claim ERC?
Yes, nonprofits are eligible for ERC.
Nonprofit organizations can claim the ERC on their Form 990-T form.
Can companies with a foreign subsidiary claim ERC?
You can claim ERC on wages paid to foreign subsidiaries.
That said, there are some additional requirements that must be met before they can claim it.
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
- Credit calculation error
- The failure to include all qualifying wages
- Failure to amend Form 941-X on time.