The COVID-19 virus has wreaked havoc across all businesses, forcing some to shut their doors or layoff employees.But there is a lifeline available to help businesses stay afloat: the Employee Retention Credit (ERC).
The ERC allows businesses to claim a tax credit on wages paid during a pandemic.The ERC is intended to keep employees employed, even when businesses are unable operate normally.
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.
-a}
The Employee Retention CreditEmployee Retention Credit Letter
Employee Retention (ERC) Credit is a refundable credit that businesses may claim on wages paid during the COVID-19 pandemic.It was created as part of the Coronavirus Aid, Relief, and Economic Security Act, in March 2020, to help companies keep their employees, despite being unable operate 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 can provide a significant financial boost to businesses that have been impacted by the pandemic.It can assist businesses in retaining their employees, covering payroll costs, as well as investing in their future.
Why was ERC formed?
The COVID-19 pandemic triggered a severe economic recession, forcing many companies to layoff their employees or close down.The ERC’s purpose was to keep employees on the payroll so that businesses could quickly reopen their doors and resume normal operation once the COVID-19 pandemic had subsided.
ERC Benefits
ERC can offer a significant boost in financial support to businesses impacted negatively by the pandemic.It can also be used to retain staff, which is important for a swift recovery.
The ERC is a refundable tax credit, meaning that businesses can claim it even if they do not owe any taxes.Businesses can also claim ERC for wages paid by employers to employees who do not work due to COVID-19. Examples include employees who were furloughed and quarantined. Employee Retention Credit Letter
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 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.It has also contributed to the economic recovery by boosting consumer spending and investment.
> > Click Here to Find Out if You Are Eligible for ERC< <
Eligibility
The primary difference between ERC requirements for 2020 and 2021 is a test of gross receipts decline.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, 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.
- 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.This includes businesses that have been ordered to close, operate at a reduced capacity, or follow certain restrictions.
- 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 decline in Gross Receipts: A business that has experienced a significant decline in its gross receipts due to COVID-19 is also eligible for the ERC.
Examples and Scenarios
These examples and scenarios illustrate the criteria for each:
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:
- ERC may be available for a retailer that suffers a drop of 50% in sales caused by COVID-19.
- 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 (ERC) Credit is an income tax credit which businesses can claim in relation to wages that were paid during the COVID-19 Pandemic.The amount of the credit is dependent on the business’s quarter and employees.
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 first quarters of 2021, the credit equals 70% of wages that are qualified. However, this is limited to $10,000 per quarter per employee.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< <
Claim the Credit
How to Claim the ERC on Federal Employment Tax Returns
To claim the Employee-Retention Credit (ERC), businesses must file a Form 941-941-X, Adjusted Employer Quarterly Federal Tax return or Claim of Refund.This form is applicable to any quarter during which the business qualifies for the credit.
Options for Claiming 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.Businesses must submit Form 7200 to the IRS, Advance Payments of Employer Taxes and Credits.
- Businesses can reduce their quarterly deposits for employment tax by the amount they anticipate receiving.Businesses must submit Form 941 to the IRS, indicating the amount they want to reduce their deposit by.
- Request a Refund: Businesses who have already paid their Employment Taxes can request to receive a refund for the credit by submitting Form 941X to the IRS.
Calculating the Amount of the Credit 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.Credit rate is set at 50% for 2020 and 70% for the three first quarters of 2021.
Businesses should avoid double-dipping on other relief programs.For example, businesses cannot claim the ERC for wages that are also used to claim the Paid Family and Medical Leave Credit or the Work Opportunity Tax Credit.
Tips and Resources for Recordkeeping and Documenation
Businesses should keep detailed records of all qualified wages paid to employees during the ERC period.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 Letter
Here are a couple of tips to help you with your recordkeeping:
- All payroll records should be kept, including W-2s and Forms 941s.
- Keep track of all hours worked by employees, including vacation, sick, and holiday time.
- 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.
The IRS provides many resources to assist businesses in claiming the ERC. They include fact sheets, videos, and FAQs.Businesses can contact IRS for help by calling 1-800-829-1040.
> > Click Here to Find Out if You Are Eligible for ERC< <
Examples of Eligible Businesses
Businesses affected by the COVID-19 virus can claim an Employee Retention credit (ERC).These are some examples of businesses who may qualify for the Employee Retention Credit.
- Restaurants forced to shut down due to government order
- Retail shops that have experienced a substantial decline in sales
- Supply chain disruptions prevent manufacturers from operating at full capacity
- Donations of nonprofit organizations declined
- Hotels and other hospitality businesses
- Travel and Tourism Businesses
- Entertainment and event business
- Personal care businesses
- Gyms & fitness studios
- Salons, spas
- Retail stores selling non-essential goods
- Businesses that were required to operate at a reduced capacity
- Businesses who are required to implement new safety standards and protocols
- Costs incurred by businesses as a result of 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 Letter
Here are a few examples of specific ways businesses have used their ERC:
- A restaurant that had to close its doors for several weeks due to government orders was able, with the ERC, to keep all of its employees employed.
- A retail outlet that suffered a 50% sales decline due to COVID-19, was able to use ERC to offset their payroll costs.
- 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.
- 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 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
ERC Scams, Aggressive Marketing and Other Risks
Unfortunately, some scammers take advantage of companies that qualify for the Employee Retention Credit.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 signals and red flags that can help you to identify ERC scammers.
- They will refund you without looking at your records.
- They charge high upfront fees or a percentage of your refund.
- They use high-pressure sales tactics. Employee Retention Credit Letter
- They are not members of a reputable professional tax organization.
- They ask for your personal or financial information 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 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.You should not provide your personal information to anyone contacting you uninvited.If you’re not sure if a company is legit or not, you should check reviews online. You can also contact the IRS.
> > Click Here to Find Out if You Are Eligible for ERC< <
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’ve also included some resources and advice on recordkeeping.The ERC provides a valuable incentive that helps employers to reduce their payroll tax liability, improve the cash flow of their business, and provide support for their employees.If you’re an eligible employer, you should claim the credit. You can also seek professional advice if you need it.
> > Click Here to Find Out if You Are Eligible for ERC< <
Employee Retention Credit Frequently Asked Questions:
Employee Retention Credit Letter
What is the ERC?
Businesses that have been affected by the COVID-19 epidemic can claim a refundable credit.
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 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 qualified wage?
Qualified wages include wages, salaries, tips, and bonuses paid to employees.
Employer-paid health insurance premiums also qualify as wages.
How can I claim my 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 filed within three years of the date the original Form 941 was filed.
Do I need to repay the ERC?
The ERC, however, is a non-refundable tax credit.
Can I claim the ERC if I received a PPP loan?
Yes, businesses can claim the ERC even if they received a PPP loan (Paycheck Protection Program).
Businesses can’t claim ERC on wages they used for PPP loans.
Can self-employed individuals claim 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 non-profit organizations claim ERC?
Yes, organizations that are not for profit can qualify for the ERC.
Nonprofit organizations are eligible to claim the ERC when filing their Forms 990-T.
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.
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?
The following are some common mistakes to avoid by businesses when claiming the ERC:
- Incorrect credit calculation
- Failure to include all qualified wages
- Failing to amend Forms 941-X within the specified timeframe.