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 is a refundable tax credit that businesses can claim on qualified wages paid to employees during the pandemic.It’s designed to help employers keep their employees, even if the business is unable to function 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.
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The Employee Retention CreditEmployee Retention Credit Quickbooks Online
Employee Retention (ERC) Credit is a refundable credit that businesses may claim on wages paid during the COVID-19 pandemic.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.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 pandemic caused a severe economic downturn, forcing many businesses to lay off employees or close their doors altogether.The ERC aims to help companies keep their staff on the payroll in order to quickly reopen after the pandemic is over.
ERC Benefits
ERC can be a major financial boost for businesses who have been affected 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 claim ERC for qualified wages paid to employees not working as a result of COVID-19. For example, employees are furloughed from work or quarantined. Employee Retention Credit Quickbooks Online
Impact of ERC on Business and the Economy
The ERC kept millions of Americans employed throughout the COVID-19 epidemic.The ERC also helped to keep businesses afloat through 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
For businesses affected by COVID-19, the Employee Retention Credit can help them retain their employees.
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, an organization must have suffered a significant drop in gross receipts by at least 20% from the same quarter the year before.
Business Qualifications
Business can qualify in two ways for the ERC
- ERC eligibility for businesses suspended or suspended partially by a government.This includes businesses that have been ordered to close, operate at a reduced capacity, or follow certain restrictions.
- Significant decline in Gross Receipts: An eligible business who has suffered a significant decrease in gross receipts as a result of COVID-19 may also be eligible for 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
You can use the following examples to demonstrate each eligibility criterion.
An order of the government may suspend all or part of a program.
- ERC will cover a restaurant which is forced to close down by government orders.
- 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.
- 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 (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 credit depends on the number of employees and the quarter.
For 2020, the credit is equal to 50% of qualified wages paid to employees up to a maximum of $10,000 per employee.For 2020, a business may receive a maximum credit of $5,000 per employee.
The credit for the first three quarters of 2021 is 70% of the qualified wages paid by employees. This maximum amount per employee per quarter is $10,000.For the first three-quarters of 2021, a business can receive up to $7,000 in credit per employee. This could amount to up to $21,000 for each employee.
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Claim the Credit
How to Claim ERC for Federal Employment Tax Returns
For businesses to claim Employee Retention Credit on federal employment taxes, they must amend Form 941X – Adjusted Employer’s quarterly Federal Tax Return (or Claim for refund) – in order to do so, they will need to file Form 941X.This form can be filed for any quarter in which the business was eligible for the credit.
Options for Claiming the ERC in Advance
Businesses can claim the ERC in three ways:
- Claim the credit ahead of time: Businesses may claim the credit by reducing the quarterly employment tax deposit.For this to happen, businesses will need to submit IRS Form 7200 – Advance Payment of Taxes and Employer Credits.
- Businesses can also reduce the quarterly employment tax deposit by the amount that they expect to get.To do so, businesses must fill out Form 941 at the IRS. They will need to indicate how much credit they intend to reduce.
- Businesses who have already paid employment taxes may request a credit refund by filing IRS Form 941X.
Calculating the Amount of the Credit and Avoiding Double-dipping with Other Relief Programs
Multiplying employee wages with the applicable credit rate will give you the ERC.The credit rate for 2020 is 50% and for the first quarter of 2021, it’s 70%.
Avoid double-dipping when it comes to 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 Documentation
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 Quickbooks Online
Here are a couple of tips to help you with your recordkeeping:
- Keep a copy of all records of your payroll, including the W-2 and Form 941.
- Keep track at all times of employee hours, including vacation, sick and holiday leave.
- Keep track of all the wages that employees receive, including overtime, bonuses, and base wages.
- Keep track of all government orders that affect your business.
The IRS provides many resources to assist businesses in claiming the ERC. They include fact sheets, videos, and FAQs.Businesses can contact the IRS 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.These are some examples of businesses who may qualify for the Employee Retention Credit.
- Restaurants are forced to close by government order
- Retail stores that saw a significant fall in sales
- Disruptions in the supply chains prevent manufacturers from working at full capacity
- Non-profit organizations who saw their donations decrease
- Hotels and other hospitality businesses
- Travel and Tourism Businesses
- Entertainment and Event Businesses
- Personal care businesses
- Gyms and fitness studios
- Salons & spas
- Retail stores selling non essential goods
- Businesses that had to operate on a lower capacity
- Businesses that were forced to implement new safety measures and protocols
- 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 Quickbooks Online
Here are some examples of how companies have used the ERC in specific situations:
- 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.
- The ERC allowed a nonprofit organization to continue providing essential services despite a decline in donations due to COVID-19.
If you own a company and are not sure if you are eligible, I recommend that you contact a qualified tax professional.You can get help from a tax professional to determine your eligibility for the ERC and claim it if eligible.
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Avoiding Scams
ERC Scams, Aggressive Marketing and Other Risks
Scammers are targeting businesses eligible 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
These warning signs will help you identify possible ERC scammers.
- They guarantee to refund your money without looking into your records.
- They charge you high upfront fees or a certain percentage of your refund.
- These salespeople use high-pressure tactics. Employee Retention Credit Quickbooks Online
- They do not belong to an organization that is reputable.
- The first thing they ask you for is your personal and financial information.
Reporting Suspicious Activities and Protecting Personal Information
You should contact the IRS if you receive a call from an ERC scammer.Call 1-800-829-1040 to report the scam or visit the IRS website.
You should also be careful to protect your personal and financial information.Never give out personal information to someone who contacts you without your permission.If you want to know if a particular business is legit, check online reviews. Or contact the IRS.
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Conclusion
In this article, we have discussed the Employee Retention Credit (ERC), a tax relief program that helps eligible employers keep their employees on payroll 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.ERCs are a valuable tool that employers can use to lower their employment tax liability and improve their cash flow. They also help support their workforce.If you qualify as an employer, please claim the ERC and get professional assistance if you require it.
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Employee Retention Bonus Frequently Answered Questions
Employee Retention Credit Quickbooks Online
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 can apply for the ERC program?
Businesses that have experienced a significant drop in gross receipts or those that were suspended or fully suspended by government orders due to the COVID-19 epidemic are eligible for the ERC.
What are qualified wages?
The wages that qualify as wages include salaries, wages, tips, and bonuses.
The employer’s health insurance premiums are also included in the calculation of 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 941-X form must be filed in three years following the original 941 filing date.
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 ERC even if I have received a PPP Loan?
Yes, businesses can claim the ERC even if they received a PPP loan (Paycheck Protection Program).
Businesses cannot claim ERC for salaries that are also used as collateral to borrow PPP loans.
Can self employed individuals claim ERC benefits?
Self-employed individuals can apply for the ERC.
The Schedule C can be used by self-employed individuals to claim the ERC.
Can non-profit organizations claim ERC?
Yes, nonprofits are eligible for ERC.
Nonprofits may claim ERCs on their Form 990T.
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.
It is important to note that there are additional requirements for claiming the tax credit.
Are there common mistakes that businesses make when claiming ERC to watch out for?
The following are some common mistakes to avoid by businesses when claiming the ERC:
- Credit calculation error
- Include all wages that qualify
- Failure to amend Forms 901-X by deadline