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 allows businesses to claim a tax credit on wages paid during a pandemic.It’s designed to help employers keep their employees, even if the business is unable to function normally.
If you own a small business and have been affected by the pandemic then the ERC will help you to keep your staff on board, as well as your business going.For more information on the ERC and how to apply for it, you can visit the IRS site, talk with a professional tax advisor or read below.
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 CreditHow To Get Employee Retention Credit
Employee Retention Tax Credit (ERC), also known as the Employee Retention Tax Credit, is a refundable tax credit that employers can claim for qualifying wages paid to their employees during COVID-19.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.
Businesses of all sizes can apply for the ERC, even those that are tax-exempt.To qualify, the business must have seen a significant reduction in gross sales or be suspended fully or partly due to an order from the government related to COVID-19.
ERCs can be a major financial boost for companies that have suffered from pandemic effects.It can assist businesses in retaining their employees, covering payroll costs, as well as investing in their future.
Why was the ERC created?
The COVID-19 Pandemic caused an economic downturn that forced many businesses either to layoff employees or shut their doors.The ERC is designed to help keep businesses open and their employees working so that they can resume normal operations as soon as the pandemic subsides.
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 may also claim ERCs on qualified wages for employees who cannot work because of COVID-19. These employees include those who are furloughed. How To Get Employee Retention Credit
Impact of ERCs on the Economy and Businesses
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 was estimated to have saved 10 million jobs and prevented thousands of businesses from closing.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 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, 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
Two ways exist for businesses to qualify for the 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.The ERC is available to businesses that have been told to close or operate at reduced capacity.
- 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 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
The following are some scenarios and examples that will help you understand each eligibility criteria.
A government order can suspend a person’s rights in full or part
- ERC can be claimed by a restaurant forced to shut down due to an order from the government.
- 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 can be awarded to a retail store that has experienced a 50% decrease in sales because of COVID-19.
- A manufacturer that is unable to operate at full capacity due to supply chain disruptions is eligible for the ERC.
> > Click Here to Find Out if You Are Eligible for ERC< <
Credit Amount
The Employee Retention Credit (ERC) is a tax credit that businesses can claim for qualified wages paid to employees during the COVID-19 pandemic.The amount of the credit varies depending on the quarter and the number of employees a business has.
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 could mean that an employer can get a credit up to $5,000 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.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.
> > Click Here to Find Out if You Are Eligible for ERC< <
Claim your 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 may be used for any quarter that the business is eligible for the credit.
Claim the ERC in Advance
Businesses have three choices for claiming ERCs:
- Claim credit in advance. Businesses can claim credit in advance by reducing their quarterly deposits for employment tax.To do so, businesses need to file IRS Form 7200, Advanced Payment of Employer credits and taxes.
- Businesses may also reduce their quarterly tax deposits on employment by the credit amount they expect.To reduce the deposits, businesses need to file IRS Form 941 and include the amount of credit that they expect to receive.
- Businesses who have already paid employment taxes may request a credit refund by filing IRS Form 941X.
Calculating the Credit Amount and Avoiding Double Dipping with Other Relief Programs
Multiplying the amount of ERC by the credit rate is how the ERC amount is calculated.The credit rate is 50% for 2020 and 70% for the first three quarters of 2021.
Businesses should be careful to avoid double-dipping with 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 Documenation
Businesses should keep detailed records detailing all qualified wages paid by employers to employees over the ERC.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. How To Get Employee Retention Credit
Here are some helpful tips on documenting your records and documents:
- Keep a copy of all records of your payroll, including the W-2 and Form 941.
- 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 provides a variety of resources to help businesses claim the ERC, including FAQs, fact sheets, and videos.Businesses can call the IRS at 1-800-829-1040 for assistance.
> > Click Here to Find Out if You Are Eligible for ERC< <
Examples of Eligible Businesses
Businesses that are affected by COVID-19 can receive the Employee Retention (ERC).The following are examples of businesses that may be eligible for the Employee Retention Credit (ERC):
- Restaurants forced to shut down due to government order
- Retail shops that have experienced a substantial decline in sales
- Due to disruptions in the supply chain, manufacturers are not able to operate at their 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 & fitness studios
- Salons & spas
- Retail stores that sell non-essential products
- Businesses that have been required to operate in a reduced capacity
- Businesses that were forced to implement new safety measures and protocols
- Costs increased for businesses due to COVID-19
Aside from these examples, businesses that have been fully or partly suspended by a government directive or who have experienced a significant drop in gross receipts as a result of COVID-19 are also eligible for ERC. How To Get Employee Retention Credit
Here are some specific examples of how businesses have used the 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.
- A nonprofit that saw their donations decrease due to COVID-19, was able to utilize the ERC and keep its employees employed to continue to provide vital services.
You should contact a professional tax advisor if, as a small business owner, you have any doubts about your eligibility for the ERC.They can assist you in determining your eligibility, and claiming the credit, if you qualify.
> > Click Here to Find Out if You Are Eligible for ERC< <
Avoiding Scams
Risks of ERC Scams and Aggressive Marketing
Unfortunately, there are scammers who are trying to take advantage of businesses that are eligible for the Employee Retention Credit (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
There are warning signs that could indicate an ERC scammer.
- They guarantee to refund your money without looking into your records.
- The fees are high, or they take a large percentage of the refund.
- They use high-pressure sales tactics. How To Get Employee Retention Credit
- They are not affiliated to a reputable organization of tax professionals.
- Some companies will ask for personal or financial details upfront.
Reporting Suspicious Actors and Protecting Your Personal Information
You should contact the IRS if you receive a call from an ERC scammer.You can report this activity by calling 1-800-829-1040.
Protecting personal information and financial data is equally important.Do not share your personal data with anyone who contacts uninvited.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.
> > Click Here to Find Out if You Are Eligible for ERC< <
Conclusion
This article has discussed the Employee retention credit (ERC), which is a tax relief that allows eligible employers to keep their employees employed during the COVID-19 Pandemic.We have explained the eligibility requirements, the claiming process, and the potential scams related to the ERC.
We have also provided some tips and resources for recordkeeping and documentation.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 Bonus Frequently Answered Questions
How To Get Employee Retention Credit
What is ERC?
Businesses affected by COVID-19 can apply for a refundable income tax credit.
This credit is equal in value to 50% of wages qualified to be paid in 2020. It is also equal in value to 70% of wages qualified to be paid in the first 3 quarters 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 are qualified wages?
The wages that qualify as wages include salaries, wages, tips, and bonuses.
Also, health insurance premiums that employers pay are considered wages.
How do I claim 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 have to pay back the ERC?
The ERC is not a tax credit that needs to be repaid.
Can I claim ERC even if I have received a PPP Loan?
Yes, even if you have received a Loan Protection Program (PPP) for your business.
Businesses cannot claim ERCs for wages they also claimed as PPPs.
Can self-employed individuals claim the ERC?
Yes, individuals who are self-employed can qualify for the ERC.
Schedule C forms can be claimed by individuals who are self-employed.
Can non profit organizations claim ERC?
Yes, non-profit organizations are eligible to apply 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?
Yes, employers can claim ERC when they pay wages to foreign employees.
However, they must also meet certain additional requirements before they are eligible to claim the benefits.
What are the common mistakes businesses make when they claim ERC?
The following are some common mistakes to avoid by businesses when claiming the ERC:
- Incorrect credit calculation
- The failure to include all qualifying wages
- Failing to amend Forms 941-X within the specified timeframe.