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).
The ERC is a refundable tax credit that businesses can claim on qualified wages paid to employees during the pandemic.It is designed to help businesses keep their employees on payroll, even if they are unable to operate normally.
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.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 Tax Credit Consultant
Employee Retention (ERC) Credit is a refundable credit that businesses may claim on wages paid during the COVID-19 pandemic.It was created in March of 2020 by the Coronavirus Aid, Relief, and Economic Security Act to help employers keep their workers on the payroll, despite the fact that they may not have been able to operate 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.
ERCs can be a major financial boost for companies that have suffered from pandemic effects.It can help businesses to retain employees, pay for payroll, and invest in the future.
Why was ERC created?
The COVID-19 Pandemic caused an economic downturn that forced many businesses either to layoff employees or shut their doors.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.The ERC can help businesses retain employees, which is crucial for a rapid recovery.
The ERC can be claimed by businesses even if no taxes are due.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 Tax Credit Consultant
Impact of the ERC on Businesses and the Economy
The ERC has helped to keep millions of Americans employed during the COVID-19 pandemic.It also helped businesses weather the storm and stay afloat.
It is estimated that the ERC has saved more than 10 million jobs, and prevented hundreds of thousands of businesses from shutting their doors.It has also contributed towards the economic recovery through a boost in consumer spending and investment.
> > Click Here to Find Out if You Are Eligible for ERC< <
Eligibility
The main difference between the 2020 and 2021 ERC requirements is the gross receipts decline test.In 2020, the business must have seen a decline of gross receipts by at least 50% in comparison to the same quarter the year before.In 2021, a business must have experienced a significant decline in gross receipts of at least 20% compared to the same quarter in the previous year.
Business Qualifications
There are two ways that businesses can qualify for 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 in gross receipts: A business that has experienced a significant decline in gross receipts due to COVID-19 is also eligible for the 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
These examples and scenarios illustrate the criteria for each:
A government order can suspend a person’s rights in full or part
- ERC is available to restaurants that are forced to close by a government order.
- The ERC is available to gyms that are required to operate with a reduced capacity because of a COVID-19-related government order.
Significant decline in gross receipts:
- ERC is available to retail stores that experience a 50% drop in sales as a result of COVID-19.
- ERCs are available for manufacturers that cannot operate at their full capacity as a result of disruptions in supply chains.
> > Click Here to Find Out if You Are Eligible for ERC< <
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.This means a company could receive up to a $5,000 credit per employee in 2020.
For the three first quarters of the year 2021, the credit is equal to 70% of the wages qualified to be paid. There is a limit of $10,000 per employee per quarter.For the first 3 quarters in 2021, an employer could receive up to $7,000 per employee each quarter. That’s up $21,000 per worker for the whole year.
> > Click Here to Find Out if You Are Eligible for ERC< <
Claiming the Credit
How to Claim the ERC when Filing 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 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 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 this, businesses must file Form 7200, Advance Payment of Employer Credits and Taxes, with the IRS.
- Businesses may also reduce their quarterly tax deposits on employment by the credit amount they expect.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 Amount of the Credit and Avoiding Double-dipping with Other Relief Programs
Multiplying qualified wages by the credit rate applicable, the ERC can be calculated.Credit rates are 50% in 2020 and 70% during the first three-quarters of 2021.
Businesses should be careful to avoid double-dipping with 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 Documentation
Keep detailed records for all wages that were paid to employees in the ERC period.This will allow businesses to calculate accurately the amount of credit they are entitled to and support their claim in the event that it is audited. Employee Retention Tax Credit Consultant
Here are some tips for recordkeeping and documentation:
- 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 wages paid to employees, including base wages, bonuses, and overtime pay.
- 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 call 1-800-829-1040 to get help from the IRS.
> > Click Here to Find Out if You Are Eligible for ERC< <
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 are forced to close by government order
- Retail stores who experienced a significant drop in sales
- Supply chain disruptions prevent manufacturers from operating at full capacity
- Donations to nonprofit organizations have declined
- Hotels and other hospitality enterprises
- Travel and tourism companies
- Entertainment and Event Businesses
- Personal care businesses
- Fitness studios and gyms
- Salons, spas
- Retail stores selling non-essential goods
- Businesses who were forced to operate with a reduced capacity
- Businesses that were forced to implement new safety measures and protocols
- 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 Tax Credit Consultant
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.
- 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.
- A manufacturer that was unable to operate at full capacity due to supply chain disruptions was able to use the ERC to keep its employees on payroll and continue to produce essential goods.
- A nonprofit organization whose donations declined due to COVID-19 used the ERC to retain its employees and continue providing essential services.
If you own a company and are not sure if you are eligible, I recommend that you contact a qualified tax professional.They can help you to determine your eligibility and to claim the credit if you are eligible.
> > Click Here to Find Out if You Are Eligible for ERC< <
Avoiding Scams
Risks of ERC Scams and Aggressive Marketing
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
These warning signs will help you identify possible ERC scammers.
- The company promises to give you a full refund without reviewing any of your records.
- You will be charged high fees upfront, or a percentage of your refund.
- They use high-pressure sales tactics. Employee Retention Tax Credit Consultant
- They are not affiliated with a reputable tax professional organization.
- Your personal or financial data is requested upfront.
Reporting Suspicious Activity and Protecting Personal Data
If you are contacted by an ERC scammer, you should report the activity to the IRS.This can be done by calling 1-800-829-1040, or visiting the IRS’s website.
Protecting your financial and personal information is also important.Do not give your personal information to anyone who contacts you unsolicited.If you want to know if a particular business is legit, check online reviews. Or contact the IRS.
> > Click Here to Find Out if You Are Eligible for ERC< <
Conclusion
In this article, the Employee Retention credit (ERC) is discussed. It’s a tax relief program that helps eligible employers retain their employees during the COVID-19 outbreak.We have discussed the ERC eligibility requirements, claim process and potential scams.
We also have some tips and materials for documenting your records.The ERC offers employers a valuable opportunity to reduce their tax liabilities, improve cash flow and support the workforce.If you qualify as an employer, please claim the ERC and get professional assistance if you require it.
> > Click Here to Find Out if You Are Eligible for ERC< <
Employee Retention Credit: Frequently Asked Questions
Employee Retention Tax Credit Consultant
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 can apply for the ERC program?
Eligible business for the ERC includes those who suffered a significant reduction in gross receipts due to government order caused by COVID-19.
What is qualified wage?
Wages, salaries, tips, and bonuses are all included in the definition of a qualified wage.
All wages that are qualified include health insurance premiums paid to the employer.
How do I claim the ERC?
The IRS will accept amended Forms 941 and 941-X from businesses to claim the ERC.The amended Form 941 X must be submitted within three years from the original date of Form 941.
Do I need to repay the ERC?
No, it is a refundable credit.
Can I claim ERC even if I have received a PPP Loan?
Businesses can still claim the ERC if they have received a Paycheck Protection Program (PPP) loan.
Businesses cannot claim ERCs for wages they also claimed as PPPs.
Can self employed individuals claim ERC benefits?
Self-employed individuals can apply 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, non-profit organizations are eligible to apply for ERC.
Nonprofit organizations are eligible to claim the ERC when filing their Forms 990-T.
Can companies with a foreign subsidiary claim ERC?
Yes, employers can claim ERC when they pay wages to foreign employees.
There are a few additional requirements to meet before you can claim the benefit.
Are there mistakes that companies make in claiming ERCs?
You should be on the lookout for these common mistakes when businesses claim their ERC.
- Credit calculation error
- The failure to include all qualifying wages
- Failure to amend form 941 – X on time.