The COVID-19 epidemic has caused havoc in businesses of all sizes. Many have been forced to close or lay off their employees.But there is a lifeline available to help businesses stay afloat: the Employee Retention Credit (ERC).
The ERC allows businesses to claim a tax credit on wages paid during 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 can be very helpful to business owners who have been impacted. It will keep employees motivated and help your business stay afloat.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.
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Employee Retention CreditIs The Employee Retention Tax Credit Legit
The Employee Retention Credit (ERC) is a refundable tax credit that businesses can claim for qualified wages paid to employees 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 are available to all businesses, even tax-exempt ones.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 the ERC created?
The COVID-19 outbreak caused an economic slump that led many businesses, including small and large ones, to either lay off staff or shut down.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.
Benefits of the ERC
ERC can offer a significant boost in financial support to businesses impacted negatively by the pandemic.It can assist in keeping employees on board, which will help the business recover quickly.
The ERC is also a refundable credit. This means that businesses are able to claim it, even if there are no taxes 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. Is The Employee Retention Tax Credit Legit
The Impact of the ERC in the Business and Economy
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 may have prevented the closure of hundreds of thousands of businesses and saved over 10,000,000 jobs.The ERC also contributed positively to the recovery in terms of consumer spending as well as investment.
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Eligibility
The test for a decline in gross receipts is the main difference between 2020 and 2021 ERC.In 2020, a business must have experienced a significant decline in gross receipts of at least 50% compared to the same quarter in the previous 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.The ERC is available to businesses that have been told to close or operate at reduced capacity.
- Significant decline of gross receipts. A business which has seen a significant fall in its gross receipts because of COVID-19, is also eligible to receive the ERC.Significant declines in gross receipts are defined as a drop of at least 50% or 20% from the same quarter last year.
Examples and Scenarios
Here are some examples and scenarios to illustrate each eligibility criterion:
Fully or partially suspended by a government order:
- ERC will cover a restaurant which is forced to close down by government orders.
- ERC may be available for a gym which is forced to operate at reduced capacity by a COVID-19 government order.
Significant decline in gross receipts:
- A retail store that experiences a 50% decline in sales due to COVID-19 is eligible for the ERC.
- 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 credit amount varies according to the quarter and number of employees of a business.
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.
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.
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Claiming the Credit
How to Claim the ERC on 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 be filed for any quarter in which the business was eligible for the credit.
Claim the ERC in Advance
There are three options available to businesses for claiming ERC:
- 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.
- Reduce employment taxes deposits. Businesses are also able to reduce their quarterly employment tax deposits by the amount expected credit.Businesses must submit Form 941 to the IRS, indicating the amount they want to reduce their deposit by.
- Businesses that already pay their employment taxes to the IRS can request a reimbursement of the credit. To do this, they must file Form 941X.
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.The credit rate for 2020 is 50% and for the first quarter of 2021, it’s 70%.
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 Documentation
Businesses must keep detailed records on all wages paid during the ERC.This will enable businesses to accurately determine the amount of credit that they are eligible for, and to back up their claim should it be audited. Is The Employee Retention Tax Credit Legit
Here are some helpful tips on documenting your records and documents:
- 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 every wage paid to an employee, including the base salary, bonuses, and overtime.
- Keep track of all government orders that affect your business.
IRS provides various resources, such as fact sheets and videos, to help businesses claim the ERC.Businesses can call the IRS at 1-800-829-1040 for assistance.
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Examples of Eligible Businesses
Businesses that are affected by COVID-19 can receive the Employee Retention (ERC).These are some examples of businesses who may qualify for the Employee Retention Credit.
- Government orders force restaurants to close
- Retail stores which experienced a significant decrease in sales
- Manufacturing companies are unable to reach full capacity because of supply chain disruptions
- Donations to nonprofit organizations have declined
- Hotels and other hospitality businesses
- Travel and tourism business
- Entertainment and event business
- Personal care businesses
- Gyms & fitness studios
- Salons and spas
- Retail stores that sell non-essential products
- Businesses that had to operate on a lower capacity
- Businesses that are forced to implement new safety protocols
- Businesses who experienced higher costs due to COVID-19
ERCs may be awarded to any business, including those that were fully or partially closed by a government order and/or experienced a significant decrease in gross receipts because of COVID-19. Is The Employee Retention Tax Credit Legit
Here are some examples that show how businesses have used ERCs:
- 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 store which experienced a drop of 50% in sales due COVID-19 could offset its payroll expenses by using the ERC.
- ERC allows a company to maintain its workforce and produce essential products despite being unable to run at full capacity.
- 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.
Contact a tax expert if you’re a business owner who is unsure if you qualify for the ERC.They can help you to determine your eligibility and to claim the credit if you are eligible.
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Avoiding Scams
ERC Scams, Aggressive Marketing and Other Risks
Unfortunately, scammers try to take advantage businesses who qualify 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.
Warning Signs and Red Flags
Here are some warning signals and red flags that can help you to identify ERC scammers.
- The company promises to give you a full refund without reviewing any of your records.
- They charge high upfront fees or a percentage of your refund.
- High-pressure sales tactics are used. Is The Employee Retention Tax Credit Legit
- They are not members of a reputable professional tax organization.
- Some companies will ask for personal or financial details upfront.
Reporting Suspicious Activities and Protecting Personal Information
If you’re contacted by an ERC con artist, then you should report their activity to IRS.Call 1-800-829-1040 to report the scam or visit the IRS website.
Also, you should be cautious about protecting your financial and personal data.Do not give your personal information to anyone who contacts you unsolicited.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
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’ve also included some resources and advice on recordkeeping.The ERC offers employers a valuable opportunity to reduce their tax liabilities, improve cash flow and support the workforce.We encourage eligible employers to claim this credit and, if necessary, seek professional help.
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Employee Retention Bonus Frequently Answered Questions
Is The Employee Retention Tax Credit Legit
What is ERC?
Businesses that have been affected by the COVID-19 epidemic can claim a refundable credit.
This credit is equal to 50% of qualified wages paid to employees in 2020 and 70% of qualified wages paid to employees in the first three quarters of 2021.
Who can apply for the ERC program?
Eligible businesses include those who have seen a significant decrease in gross revenues or have been suspended fully or partly due to government orders resulting from the COVID-19 Pandemic.
What is a qualified wage?
The wages that qualify as wages include salaries, wages, tips, and bonuses.
Health insurance premiums paid by the employer are also considered qualified wages.
How do I claim ERC?
Businesses can claim the ERC by filing an amended Form 941 or Form 941-X with the IRS.The amended Form 941X must be filed no later than three years after the original Form 941.
Do I have to repay my ERC?
The ERC is not a tax credit that needs to be repaid.
Can I claim the ERC if I received a PPP loan?
Yes, businesses can claim the ERC even if they received a PPP loan (Paycheck Protection Program).
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?
Nonprofit organizations can apply for the ERC.
Nonprofit organizations can claim the ERC on their Form 990-T form.
Can companies that own a foreign affiliate claim ERCs?
Yes, businesses can claim the ERC for wages paid to employees of foreign subsidiaries.
Before you can get it, however, you must meet some additional requirements.
Are there any common mistakes made by businesses when claiming ERC that they should be on the lookout for?
You should be on the lookout for these common mistakes when businesses claim their ERC.
- Calculation error on credit
- Include all wages that qualify
- The failure to amend Form 941-X in time.