The COVID-19 virus has wreaked havoc across all businesses, forcing some to shut their doors or layoff employees.Employee Retention (ERC) Credit is available to businesses that need it.
It is a refundable credit that can be claimed by employers on certain wages paid to employees in the event of a pandemic.The ERC was created to ensure that businesses can continue to pay employees during a pandemic, even if their normal business operations are disrupted.
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 Tax Advisor
Employee Retention credit (ERC), a refundable income tax credit, is available to businesses for wages paid by them during the COVID-19 epidemic.The Coronavirus Aid, Relief, and Economic Security Act created the Employee Retention Credit (ERC) in March 2020. Its purpose is to assist businesses to keep their employees, even if the business is unable to function normally.
ERCs can be obtained by businesses of any size, including those exempt from tax.For a business to be eligible, it must have suffered a significant decrease in gross revenues or been partially or completely suspended by a government order related to COVID-19.
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 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 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 Tax Advisor
Impact of ERCs on the Economy and Businesses
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.
ERC saved 10 million jobs. Thousands of businesses were prevented from closing.The ERC also contributed positively to the recovery in terms of consumer spending as well as investment.
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Eligibility
The Employee Retention Credit (ERC) is a tax credit available to businesses that have been impacted by the COVID-19 pandemic. To be eligible, a business must have experienced a significant decline in gross receipts or have been fully or partially suspended due to a COVID-19-related government order.
The main difference between the 2020 and 2021 ERC requirements is the gross receipts decline test.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, an organization must have suffered a significant drop in gross receipts by at least 20% from the same quarter the year before.
Business Qualifications
Two ways exist for businesses to qualify for the ERC:
- ERC is available to businesses that have been suspended in whole or part by government orders due to COVID-19.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 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.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
The following are some scenarios and examples that will help you understand each eligibility criteria.
Fully or partially suspended by a government order:
- ERC is available to restaurants that are forced to close by a government order.
- 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 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 credit (ERC), a tax-credit that businesses can claim, is for wages paid to qualified employees during the COVID-19 epidemic.The amount of the credit varies depending on the quarter and the number of employees a business has.
For 2020, the credit is equal to 50% of qualified wages paid to employees up to a maximum of $10,000 per employee.A business can receive up to $5,000 in credit per employee for the year 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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Claim your Credit
How to Claim ERC on 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 in Advance
Businesses have three choices for claiming ERCs:
- Claim it in advance. Businesses are able to claim the credit before the quarter’s end by reducing quarterly employment taxes.For this to happen, businesses will need to submit IRS Form 7200 – Advance Payment of Taxes and Employer 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 Credit Amount and Avoiding Double Dipping with Other Relief Programs
The amount of the ERC is calculated by multiplying the qualified wages paid to employees by the applicable credit rate.The credit rate for 2020 is 50% and for the first quarter of 2021, it’s 70%.
Businesses should avoid double-dipping on other relief programs.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 Documenation
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 Tax Advisor
Here are some tips on recordkeeping and documentation.
- 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.
- Keep track of all government orders that affect your business.
The IRS offers many resources for businesses to claim the ERC. This includes FAQs and fact sheets.Businesses can also contact the IRS for assistance by calling 1-800-829-1040.
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Examples of Eligible Businesses
Businesses that have been affected by the COVID-19 Pandemic can apply for the Employee Retention Credit.The following are examples of businesses that may be eligible for the Employee Retention Credit (ERC):
- Restaurants closed due to government orders
- Retail stores that experienced a significant decline in sales
- Due to disruptions in the supply chain, manufacturers are not able to operate at their full capacity
- Donations of nonprofit organizations declined
- Hotels and other hospitality enterprises
- Travel and tourism businesses
- Entertainment and event businesses
- Personal care businesses
- Gyms and 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
- Costs incurred by businesses as a result of 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 Tax Advisor
Here are some examples of how companies have used the ERC in specific situations:
- A restaurant, which was forced to close due to an order from the government for a period of several months, was able use the ERC in order to keep their employees on the payroll.
- An ERC offset the payroll costs of a retail shop that saw a 50% decrease in sales because of COVID-19.
- 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 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.
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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 may use aggressive marketing tactics to try to convince businesses to sign up for their services, even if the business is not eligible for the ERC.
Red Flags and Warning Signs
Here are some warning signs and red flags to identify potential ERC scammers:
- 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 Tax Advisor
- They do not belong to an organization that is reputable.
- Some companies will ask for personal 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 report this activity by calling 1-800-829-1040.
Protecting your financial and personal information is also important.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.
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Conclusion
We have covered the Employees Retention (ERC) Credit in this article. This is a tax credit program that helps employers who qualify to retain their staff during the COVID-19 pandemic.We have discussed eligibility requirements, claiming processes, and possible scams related the ERC.
We also have some tips and materials for documenting your records.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 are an eligible employer, we encourage you to claim the credit and seek professional assistance if needed.
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Employee Retention Credit: Frequently Asked Questions
Employee Retention Credit Tax Advisor
What is ERC?
It is a refundable tax credit available to businesses that were impacted by the COVID-19 pandemic.
This credit is equal to 50% the wages paid by employees to qualified employees in 2020. And 70% of the wages paid by employees to qualified employees in their first three quarters in 2021.
Who is eligible to apply for ERC?
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 are qualified wages?
Qualified wages include wages, salaries, tips, and bonuses paid to employees.
Health insurance premiums paid by the employer are also considered qualified wages.
How do I claim the ERC?
The IRS allows businesses to claim ERCs if they file an amended Form 951, or Form 951,-X.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 have to repay my 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 ERC if I received a loan from PPP?
You can still claim an ERC even though you received a loan through the Paycheck Protection Programme (PPP).
The ERC cannot be claimed for wages used to obtain a PPP loan.
Can self-employed individuals claim ERC?
Self-employed individuals can apply for the ERC.
Self-employed persons can claim ERC by completing Schedule C.
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?
Yes, businesses can claim the ERC for wages paid to employees of foreign subsidiaries.
However, they must also meet certain additional requirements before they are eligible to claim the benefits.
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
- The credit calculation is incorrect
- The failure to include all qualifying wages
- Failing to amend Forms 941-X within the specified timeframe.