COVID-19 has caused massive damage to businesses of every size, with many being forced to cut staff or shut down their doors.Employee Retention (ERC) Credit is available to businesses that need it.
The ERC can be claimed by businesses on the wages they paid employees who qualified during 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.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 CreditNys 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.A business must be eligible if it has experienced a significant drop in gross receipts, or if they have been suspended or fully suspended because of a COVID-19 related government order.
The ERC provides a financial boost for businesses that are affected by pandemic.It can help businesses to retain employees, pay for payroll, and invest in the future.
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 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 be a major financial boost for businesses who have been affected by the pandemic.It can assist in keeping employees on board, which will help the business recover quickly.
Businesses can claim the ERC even if they don’t owe taxes.Businesses can also claim ERC for wages paid by employers to employees who do not work due to COVID-19. Examples include employees who were furloughed and quarantined. Nys Employee Retention Credit
Impact of the ERC on Businesses and the Economy
The ERC kept millions of Americans employed throughout the COVID-19 epidemic.It also helped businesses weather the storm and stay afloat.
The ERC is estimated to have saved over 10 million jobs and prevented hundreds of thousands of businesses from closing their doors.The ERC also contributed positively to the recovery in terms of consumer spending as well as investment.
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Eligibility
For businesses affected by COVID-19, the Employee Retention Credit can help them retain their employees.
The main difference between the 2020 and 2021 ERC requirements is the gross receipts decline test.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 must have experienced a significant decline in gross receipts of at least 20% compared to the same quarter in the previous year.
Business Qualifications
The ERC is available to businesses in two different ways.
- ERC for a business suspended fully or partly by a Government Order: An ERC can be awarded to a business that is suspended either completely or partially by an order of the government due 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 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 revenue are defined as a decrease of at minimum 50% in 2020 quarters or at most 20% in 2021 quarters compared to same quarters the year before.
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 may be available for a restaurant that has to close because of a government directive.
- ERC eligibility is granted to a gym that must operate at a lower capacity as a result of a government order relating to 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 eligibility is for a manufacturer who is not able to operate at maximum capacity due to disruptions in 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 amount varies depending on how many employees are employed and what quarter it is.
Credits for 2020 are equal to 50% the qualified wages paid by employees, up to a maximum amount of $10,000 per employee.For 2020, a business may receive a maximum credit of $5,000 per employee.
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 Credit
How to Claim ERC in Federal Employment Taxreturn
Businesses must amend Form 941X, Adjusted Employer’s Quarterly Federal Income Tax Return or Claim For Refund, to claim the Employee retention credit (ERC) in federal employment tax returns.This form can be submitted for any quarter where the business was entitled to the credit.
Options for Claiming the ERC 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 so, businesses need to file IRS Form 7200, Advanced Payment of Employer credits and taxes.
- Businesses can also reduce the quarterly employment tax deposit by the amount that they expect to get.To do this, businesses must file Form 941 with the IRS and indicate the amount of the credit they are reducing their deposits by.
- Request a refund: Businesses that have already paid their employment taxes can request a refund of the credit by filing Form 941-X with the IRS.
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 for 2020 is 50% and for the first quarter of 2021, it’s 70%.
Avoid double-dipping when it comes to other relief programs.For example, businesses cannot claim the ERC for wages that are also used to claim the Paid Family and Medical Leave Credit or the 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 enable the business to calculate the credit amount accurately and provide evidence to support the claim, if audited. Nys Employee Retention Credit
Here are some helpful tips on documenting your records and documents:
- Keep copies of all payroll records, including Forms 941 and W-2s.
- Keep track of the hours that employees work, including sick leave, vacation time, and holidays.
- Keep track of the wages you pay to your employees. This includes base wage, bonuses, and overtime pay.
- Keep track of any government orders that affected the business’s operations.
The IRS provides a variety of resources to help businesses claim the ERC, including FAQs, fact sheets, and videos.Businesses can contact IRS for help by calling 1-800-829-1040.
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Examples of Eligible Businesses
Businesses affected by the COVID-19 virus can claim an Employee Retention credit (ERC).Here are some businesses that could be eligible for Employee Retention Credit.
- Restaurants forced to close due to government orders
- Retail stores who experienced a significant drop in sales
- Due to disruptions in the supply chain, manufacturers are not able to operate at their full capacity
- Donations to nonprofit organizations have declined
- Hotels and other hospitality enterprises
- Travel and tourism companies
- Entertainment and event business
- Personal care businesses
- Fitness studios and gyms
- Salons and spas
- Retail stores selling non essential goods
- Businesses that have been required to operate in a reduced capacity
- Businesses who are required to implement new safety standards and protocols
- Costs increased for businesses due to 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. Nys Employee Retention Credit
Here are some specific examples of how businesses have used the ERC:
- An employee of a restaurant forced to close down by government order for a few months was able to continue to be paid through the ERC.
- A retail store which experienced a drop of 50% in sales due COVID-19 could offset its payroll expenses by using the ERC.
- The ERC allowed a manufacturer who was not able to operate at its full capacity because of supply chain disruptions to continue producing essential goods and keep their employees on the payroll.
- 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.
Contact a tax expert if you’re a business owner who is unsure if you qualify for the ERC.They can help determine your eligibility as well as claim the credit for you if you’re 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.These scammers use aggressive marketing to convince businesses to subscribe to their services even if that business isn’t eligible for the Employee Retention Credit (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 high fees upfront or take a portion of your refund.
- The salespeople are aggressive and use high-pressure tactics. Nys Employee Retention Credit
- They are not affiliated with a reputable tax professional organization.
- The first thing they ask you for is your personal and financial information.
Reporting Suspicious Activities and Protecting Personal Information
If you’re contacted by an ERC con artist, then you should report their activity to IRS.This can be done by calling 1-800-829-1040, or visiting the IRS’s website.
It is important to safeguard your personal and financial data.Never give out personal information to someone who contacts you without your permission.If you are unsure whether or not a business is legitimate, you can check their reviews online or contact the IRS for assistance.
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Conclusion
In this article, we have discussed the Employee Retention Credit (ERC), a tax relief program that helps eligible employers keep their employees on payroll during the COVID-19 pandemic.We have discussed the ERC eligibility requirements, claim process and potential scams.
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 are an eligible employer, we encourage you to claim the credit and seek professional assistance if needed.
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Frequently Asked Questions about Employee Retention Credits
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What is the ERC?
This is a tax credit that can be refunded to businesses who were affected by the COVID-19 Pandemic.
This credit is equal 50% of qualified wage paid to employees for 2020 and 70% qualified wage paid to employees during the first three-quarters of 2021.
Who is eligible for the 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 is a qualified wage?
The wages that qualify as wages include salaries, wages, tips, and bonuses.
The employer’s health insurance premiums are also included in the calculation of wages.
How do you claim your ERC?
Businesses can claim ERC by submitting an amended Form 941 to the IRS.The amended 941-X form must be filed in three years following the original 941 filing date.
Do I have to pay back the ERC?
The ERC is not a tax credit that needs to be repaid.
Can I claim ERC if I received a loan from PPP?
Yes, even if you have received a Loan Protection Program (PPP) for your business.
The ERC cannot be claimed for wages used to obtain a PPP loan.
Can self-employed individuals claim ERC?
Yes, you can get the ERC if you are a self-employed individual.
Self-employed individuals can claim the ERC on their Schedule C form.
Can nonprofit organizations claim ERC?
Yes, nonprofit organizations are eligible for the ERC.
Nonprofit organizations may claim the ERC by submitting Form 990-T.
Can companies that own a foreign affiliate claim ERCs?
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.
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
- Credit calculation error
- Inclusion of all eligible wages
- The failure to amend Form 941-X in time.