COVID-19, a pandemic that has affected businesses of all types and sizes, has forced many to either lay off staff or close their business.There is one lifeline that can help businesses remain afloat – the Employee Retention credit (ERC).
It is a refundable credit that can be claimed by employers on certain wages paid to employees in the event of a pandemic.It’s designed to help employers keep their employees, even if the business is unable to function normally.
The ERC is a great way to keep your employees engaged and your business running smoothly if you’re a business owner impacted by the pandemic.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 Start Date
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 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.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 is able to provide significant financial support for businesses affected by the pandemic.It can help businesses to retain employees, pay for payroll, and invest in the future.
Why was the 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
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 can be claimed by businesses even if no taxes are 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 Start Date
Impact of ERC on Business and the Economy
The ERC kept millions of Americans employed throughout the COVID-19 epidemic.It also helped companies to weather the economic storm and remain afloat.
ERC may have prevented the closure of hundreds of thousands of businesses and saved over 10,000,000 jobs.It also contributed to the recovery of the economy by increasing consumer spending, and investing.
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Eligibility
The Employee Retention Credit (ERC) can be claimed by businesses that have suffered a decline in gross sales or been suspended because of a COVID-19 government order.
The primary difference between ERC requirements for 2020 and 2021 is a test of gross receipts decline.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
Businesses can qualify for the ERC in two ways:
- ERC eligibility for businesses suspended or suspended partially by a government.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
Here are some examples and scenarios to illustrate each eligibility criterion:
Full or partial suspension by 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 eligibility is granted to retail stores who experience a sales decline of 50% due to COVID-19.
- ERCs are available for manufacturers that cannot operate at their full capacity as a result of disruptions in supply chains.
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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 varies depending on how many employees are employed and what quarter it is.
The credit for 2020 is equal 50% of the wages qualified to be paid to employees. This maximum can reach $10,000 per employee.This means a company could receive up to a $5,000 credit per employee in 2020.
Credits are equal to 70% of qualified wages for the first 3 quarters of 2020, with a maximum per employee of $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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Claiming the Credit
How to Claim the ERC when Filing Federal Employment Tax Returns
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 also be filed for any other quarters in which a business may have been eligible for credit.
Claim the ERC by Claiming it in Advance
Businesses have three options for claiming 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, business must file IRS Form 7220, Advance Payment for Employer Credits & Taxes.
- Reduce employment tax deposits: Businesses can also reduce their quarterly employment tax deposits by the amount of the credit they expect to receive.Businesses can do this by filing Form 941 and indicating how much they will reduce their quarterly employment tax deposits.
- 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 Amount of the Credit 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 rates are 50% in 2020 and 70% during the first three-quarters of 2021.
Businesses should avoid double-dipping on other relief programs.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
Keep detailed records for all wages that were paid to employees in 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 Start Date
Here are a few tips for documenting and keeping records:
- All payroll records should be kept, including W-2s and Forms 941s.
- Keep track of all the hours worked by your employees including holidays, sick days, and vacations.
- Keep track of all the wages that employees receive, including overtime, bonuses, and base wages.
- Keep track of government orders affecting your business.
The IRS offers a number of resources that can help businesses claim their ERC. These include FAQs, factsheets, and videos.Businesses can call the IRS at 1-800-829-1040 for assistance.
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Examples of Eligible Businesses
Businesses impacted by COVID-19 are eligible for the Employee retention credit (ERC).The following are examples of businesses that may be eligible for the Employee Retention Credit (ERC):
- Restaurants forced to close due to government orders
- Retail stores that saw a significant fall in sales
- Supply chain disruptions prevent manufacturers from operating at full capacity
- Non-profit organizations who saw their donations decrease
- Hotels and other hospitality business
- Travel and tourism businesses
- Entertainment and event businesses
- Personal care businesses
- Fitness studios and gyms
- Salons and spas
- Retail shops selling non-essential items
- Businesses that were required to operate at a reduced capacity
- Businesses forced to adopt new safety protocols and measures
- Businesses who experienced higher 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 Start Date
Here are some examples that show how businesses have used ERCs:
- 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 whose donations declined due to COVID-19 used the ERC to retain its employees and continue providing essential services.
If you are an owner of a business and are unsure as to whether you are eligible for ERC, then I would encourage you contact a tax specialist.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
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
There are warning signs that could indicate an ERC scammer.
- They promise you will get a refund even if they don’t review your records.
- They charge you high upfront fees or a certain percentage of your refund.
- They use high-pressure sales tactics. Employee Retention Credit Start Date
- They are not affiliated to a reputable organization of tax professionals.
- Your personal or financial data is requested upfront.
Reporting Suspicious Activity and Protecting Personal Data
If you are contacted by an ERC fraudster, you must report this activity to the IRS.You can report this activity by calling 1-800-829-1040.
Also, you should be cautious about protecting your financial and personal data.Never give out personal information to someone who contacts you without your permission.You can find reviews of a company online, or you can contact the IRS if you’re unsure.
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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.The ERC has been explained in detail, including the eligibility requirements and the claim process.
We also have some tips and materials for documenting your 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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Frequently Asked Questions about Employee Retention Credits
Employee Retention Credit Start Date
What is the 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?
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 is a qualified wage?
Salary, wages, bonuses, and tips are all considered to be wages.
Health insurance premiums paid by the employer are also considered qualified wages.
How can I claim my ERC?
Businesses can claim the ERC by filing an amended Form 941 or Form 941-X with the IRS.The amended form 941-X is required to be filed within 3 years from the date that the original Form 941 has been filed.
Do I need to repay the ERC?
The ERC, however, is a non-refundable tax credit.
Can I claim ERC if I received a loan from PPP?
Businesses can still claim the ERC if they have received a Paycheck Protection Program (PPP) loan.
Businesses cannot claim the ERC for wages that were also used to claim the PPP loan.
Can self-employed people claim the ERC?
Self-employed individuals can apply for the ERC.
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 wages paid by foreign subsidiaries to their employees.
Before you can get it, however, you must meet some additional requirements.
What are the common mistakes businesses make when they claim ERC?
When claiming your ERC; businesses must be aware of the following mistakes:
- Credit calculation error
- Failure to include all qualified wages
- Failure to amend Forms 901-X by deadline