COVID-19 has caused massive damage to businesses of every size, with many being forced to cut staff or shut down their doors.The Employee Retention Credit can be a lifeline for businesses struggling to stay afloat.
The ERC can be claimed by businesses on the wages they paid employees who qualified during 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.
-a}
Employee Retention CreditEmployee Retention Credit Kpmg
Employee Retention Credit (ERC) is a tax credit for businesses that can be claimed if they pay employees wages 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.
The ERC is available to businesses of all sizes, including tax-exempt organizations.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 can provide a significant financial boost to businesses that have been impacted by the pandemic.It can help businesses to retain employees, pay for payroll, and invest in the future.
Why was ERC created
The COVID-19 epidemic caused a severe downturn in the economy, which forced many businesses to close or lay off their employees.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
ERC can offer a significant boost in financial support to businesses impacted negatively by the pandemic.It can also help businesses retain their employees, which is essential for a quick 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 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 Kpmg
The Impact of the ERC in the Business and Economy
The ERC has helped to keep millions of Americans employed during the COVID-19 pandemic.It also helped companies to weather the economic storm and remain afloat.
The ERC is estimated to have saved over 10 million jobs and prevented hundreds of thousands of businesses from closing their doors.The ERC also contributed positively to the recovery in terms of consumer spending as well as investment.
> > Click Here to Find Out if You Are Eligible for ERC< <
Eligibility
The test for a decline in gross receipts is the main difference between 2020 and 2021 ERC.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
- Fully or partially suspended by a government order: A business that has been fully or partially suspended by a government order due to COVID-19 is eligible for the ERC.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 of gross receipts. A business which has seen a significant fall in its gross receipts because of COVID-19, is also eligible to receive the ERC.Significant declines in gross receipts are defined as a drop of at least 50% or 20% from the same quarter last year.
Examples and Scenarios
The following are some scenarios and examples that will help you understand each eligibility criteria.
Full or partial suspension by government order
- ERC will cover a restaurant which is forced to close down by government orders.
- ERC can be awarded to a fitness center that has to operate on a reduced basis due to an order from the government based on 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.
- ERC is available to manufacturers who are unable to run at full capacity because of supply chain disruptions.
> > Click Here to Find Out if You Are Eligible for ERC< <
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.
For 2020, the credit is equal to 50% of qualified wages paid to employees up to a maximum of $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 that a business could receive a credit of up to $7,000 per employee per quarter for the first three quarters of 2021, for a total of up to $21,000 per employee for the year.
> > Click Here to Find Out if You Are Eligible for ERC< <
Claiming 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 is applicable to any quarter during which the business qualifies for the credit.
Claim the ERC by Claiming it 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 so, businesses need to file IRS Form 7200, Advanced Payment of Employer credits and taxes.
- Businesses can also reduce the quarterly employment tax deposit by the amount that they expect to get.Businesses must submit Form 941 to the IRS, indicating the amount they want to reduce their deposit by.
- 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
Multiplying the amount of ERC by the credit rate is how the ERC amount is calculated.Credit rate is set at 50% for 2020 and 70% for the three first quarters of 2021.
Businesses should be aware of the dangers of double-dipping.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 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 Kpmg
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 of all the hours worked by your employees including holidays, sick days, and vacations.
- Keep track of the wages you pay to your employees. This includes base wage, bonuses, and overtime pay.
- Track any government orders which may have an impact on the business.
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.
> > Click Here to Find Out if You Are Eligible for ERC< <
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 close due to government orders
- Retail stores that saw a significant fall in sales
- Manufacturers unable to operate at full capacity due to supply chain disruptions
- Donations for nonprofit organizations are down
- Hotels and other hospitality business
- Travel and tourism companies
- Entertainment and event business
- Personal care businesses
- Fitness studios and gyms
- Salons and spas
- Retail stores selling non-essential goods
- Businesses required to operate under reduced capacity
- Businesses forced to adopt new safety protocols and measures
- 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 Kpmg
Below are some specific examples on how businesses have utilized the ERC.
- The ERC allowed a restaurant to retain its staff after it was forced to shut down for several months by government order.
- An ERC offset the payroll costs of a retail shop that saw a 50% decrease in sales because of COVID-19.
- ERC can be used by a producer who is unable operate at maximum capacity due to disruptions of the supply chain. This allows them to keep their employees and continue producing essential products.
- 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.
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.
> > Click Here to Find Out if You Are Eligible for ERC< <
Avoiding Scams
Risks of ERC Scams and Aggressive Marketing
Unfortunately, there are scammers that try to take advantage business owners who are eligible for Employee Retention Credits (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).
Red Flags and Warning Signs
Here are some warning signs and red flags to identify potential ERC scammers:
- The company promises to give you a full refund without reviewing any of your records.
- The fees are high, or they take a large percentage of the refund.
- The salespeople are aggressive and use high-pressure tactics. Employee Retention Credit Kpmg
- They are not affiliated to a reputable organization of tax professionals.
- The first thing they ask you for is your personal and financial information.
Reporting Suspicious Activities and Protecting Personal Information
If you have been contacted by an ERC scammer , you should notify the IRS .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.Don’t give out your personal details to anyone who contacts without asking.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.
> > Click Here to Find Out if You Are Eligible for ERC< <
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 discussed eligibility requirements, claiming processes, and possible scams related 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 are eligible, we encourage to claim credit. Professional assistance may be needed if required.
> > Click Here to Find Out if You Are Eligible for ERC< <
Employee Retention Credit Frequently Asked Questions:
Employee Retention Credit Kpmg
What is ERC?
The COVID-19 pandemic has impacted businesses. A refundable tax credit is available.
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 is eligible to apply for 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?
Salary, wages, bonuses, and tips are all considered to be wages.
Also, health insurance premiums that employers pay are considered wages.
How do you claim your ERC?
Businesses can claim ERCs by filing amended Forms 941 or 941-X at the IRS.The amended Form 941X must be filed no later than three years after the original Form 941.
Do I have to pay back the ERC?
The ERC does not require repayment by businesses. It is a tax credit that can be used to offset future taxes.
Can I claim the ERC if I received a PPP loan?
The ERC is available to businesses who have taken out a PPP (Paycheck protection Program) loan.
Businesses cannot claim ERC for salaries that are also used as collateral to borrow PPP loans.
Can self-employed people claim the ERC?
Yes, the ERC is available to self-employed people.
Self-employed individuals can claim the ERC on their Schedule C form.
Can non profit organizations claim ERC?
Yes, non-profit organizations are eligible to apply for ERC.
Nonprofit organizations can claim the ERC on their Form 990-T form.
Can companies that have a foreign subsidiary claim ERC benefits?Can companies who have a foreign branch claim ERC?
Businesses can claim ERC for the wages they pay to foreign-based employees.
Before you can get it, however, you must meet some additional requirements.
Are there any common mistakes made by businesses when claiming ERC that they should be on the lookout for?
The following are some common mistakes to avoid by businesses when claiming the ERC:
- Calculation error on credit
- Include all wages that qualify
- The failure to amend Form 941-X in time.