The COVID-19 virus has wreaked havoc across all businesses, forcing some to shut their doors or layoff employees.But there is a lifeline available to help businesses stay afloat: the Employee Retention Credit (ERC).
The ERC is an refundable tax credit which businesses can claim for wages that were paid to their employees during the pandemic.The ERC is intended to keep employees employed, even when businesses are unable operate normally.
The ERC may be able to help keep your employees and business afloat if your company has been impacted.To find out more about ERC and to claim, you can either visit the IRS web site, speak with an advisor, or check 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 CreditNew York Subtraction Employee Retention Credit
Employee Retention Credit (ERC) is a tax credit for businesses that can be claimed if they pay employees wages 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.
Businesses of all sizes can apply for the ERC, even those that are tax-exempt.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 provides a financial boost for businesses that are affected by pandemic.It can assist businesses in retaining their employees, covering payroll costs, as well as investing in their future.
Why was ERC created?
The COVID-19 pandemic triggered a severe economic recession, forcing many companies to layoff their employees or close down.The ERC aims to help companies keep their staff on the payroll in order to quickly reopen after the pandemic is over.
ERC Benefits
ERCs can give businesses impacted by pandemics a financial boost.It can also help businesses retain their employees, which is essential for a quick recovery.
The ERC, which is a tax credit that is claimed even by businesses who do not owe a dime in taxes, is refundable.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. New York Subtraction Employee Retention Credit
Impact of ERC on Businesses and the Economy
The ERC is credited with keeping millions of Americans at work during the COVID-19 outbreak.The ERC also helped to keep businesses afloat through the economic storm.
ERC saved 10 million jobs. Thousands of businesses were prevented from closing.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 main difference between the 2020 and 2021 ERC requirements is the gross receipts decline test.In 2020, an enterprise must have suffered a significant drop in gross receipts that is at least 50 percent less than the same period in the previous calendar 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
Businesses can qualify for the ERC in two ways:
- 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: A business that has experienced a significant decline in gross receipts due to COVID-19 is also eligible for 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
These examples and scenarios illustrate the criteria for each:
An order of the government may suspend all or part of a program.
- 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 eligibility is granted to retail stores who experience a sales decline of 50% due to 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 Tax Credit (ERC), is a credit for businesses that can be claimed on qualified wages paid by employers to their employees during COVID-19.The amount of the credit is dependent on the business’s quarter and employees.
In 2020, the credit will be equal to half of all wages that employees are entitled to receive up to $10,000.This could mean that an employer can get a credit up to $5,000 for 2020.
Credits are equal to 70% of qualified wages for the first 3 quarters of 2020, with a maximum per employee of $10,000.A business could receive credit up to $7000 per employee, per quarter for the three first quarters of the year 2021.
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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), 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
Businesses have three options to claim the ERC.
- Claim credit in advance. Businesses can claim credit in advance by reducing their quarterly deposits for employment tax.To do this, business must file IRS Form 7220, Advance Payment for Employer Credits & Taxes.
- Businesses can reduce their quarterly deposits for employment tax by the amount they anticipate receiving.To do this, businesses must file Form 941 with the IRS and indicate the amount of the credit they are reducing their deposits 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.The credit rate is 50% for 2020 and 70% for the first three quarters of 2021.
Businesses should avoid double-dipping on other relief programs.Businesses can’t, for instance, claim ERC wages if they also claim Paid Family Leave Credit (PFML) or Work Opportunity Tax Credit.
Tips and Resources for Recordkeeping and Documenation
Businesses must keep detailed records on all wages paid during the ERC.This will assist businesses in accurately calculating the amount they are entitled for as well as supporting their claim if the IRS audits it. New York Subtraction Employee Retention Credit
Here are some tips on recordkeeping and documentation.
- Keep a record of all your payroll documents, such as W-2 forms and 941s.
- Keep track of the hours that employees work, including sick leave, vacation time, and holidays.
- Keep track of all the wages that employees receive, including overtime, bonuses, and base wages.
- Keep track of any orders from the government that may 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.
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Examples of Eligible Businesses
The Employee Retention Credit (ERC) is available to businesses that have been impacted by the COVID-19 pandemic.These are some examples of businesses who may qualify for the Employee Retention Credit.
- Restaurants closed due to government orders
- Retail stores that saw a significant fall in sales
- Disruptions in the supply chains prevent manufacturers from working at full capacity
- Nonprofit organizations that saw their donations decline
- Hotels and other hospitality enterprises
- Travel and Tourism Businesses
- Entertainment and event businesses
- Personal care businesses
- Gyms and fitness studios
- Salons and spas
- Retail shops selling non-essential items
- Businesses required to operate under reduced capacity
- Businesses who are required to implement new safety standards and protocols
- Costs incurred by businesses as a result of COVID-19
These examples are not the only ones that qualify. Any business that has been suspended in whole or part by an order of government or that has seen a decline in gross sales due to COVID-19 could also be eligible. New York Subtraction Employee Retention Credit
Here are some examples that show how businesses have used ERCs:
- A restaurant that was forced to close for several months due to a government order was able to use the ERC to keep its employees on the payroll.
- 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.
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
Scammers are targeting businesses eligible for the Employee Retention Credit.These scammers might use aggressive advertising tactics to convince businesses that they should sign up for their service, even though the business may not be eligible for ERC.
Red Flags and Warning Signs
Here are some warning signals and red flags that can help you to identify ERC scammers.
- They promise to get you a refund without reviewing your records.
- They charge you high upfront fees or a certain percentage of your refund.
- Sales tactics are high-pressure. New York Subtraction Employee Retention Credit
- They are not affiliated with a reputable tax professional organization.
- You will be asked to provide your personal information or financial details upfront.
Reporting Suspicious Actors and Protecting Your Personal Information
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.Do not share your personal data with anyone who contacts uninvited.You can find reviews of a company online, or you can contact the IRS if you’re unsure.
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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 explained the eligibility requirements, the claiming process, and the potential scams related to the ERC.
We’ve also included some resources and advice on recordkeeping.The ERC can be a valuable benefit for employers, helping them reduce their employment taxes, improve their cashflow, and support their employees.We encourage eligible employers to claim this credit and, if necessary, seek professional help.
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Frequently Asked Questions about Employee Retention Credits
New York Subtraction Employee Retention Credit
What is ERC?
Businesses that have been affected by the COVID-19 epidemic can claim a refundable credit.
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 business for the ERC includes those who suffered a significant reduction in gross receipts due to government order caused by COVID-19.
What is a qualified wage?
Qualified wages include wages, salaries, tips, and bonuses paid to employees.
The employer’s health insurance premiums are also included in the calculation of wages.
How do you claim your ERC?
Businesses can claim ERCs by filing amended Forms 941 or 941-X at 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 have to repay my ERC?
No, the ERC is a refundable tax credit, which means that businesses do not need to repay it.
Can I claim the ERC if I received a PPP loan?
Yes, even if you have received a Loan Protection Program (PPP) for your business.
Businesses cannot claim ERC for salaries that are also used as collateral to borrow PPP loans.
Can self employed individuals claim ERC benefits?
Yes, you can get the ERC if you are a self-employed individual.
The Schedule C can be used by self-employed individuals to claim the ERC.
Can non-profit organizations claim ERC?
Yes, nonprofits are eligible for ERC.
Nonprofit organizations may claim the ERC by submitting Form 990-T.
Can companies with a foreign subsidiary claim ERC?
Businesses can claim ERC for wages paid by foreign subsidiaries to their employees.
It is important to note that there are additional requirements for claiming the tax credit.
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
- The failure to include all qualifying wages
- Failure to amend Form 941-X on time.