The COVID-19 epidemic has caused havoc in businesses of all sizes. Many have been forced to close or lay off their employees.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 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.If you want to know more about the ERC or how to claim it visit the IRS’ website, consult a tax advisor or continue reading 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 CreditPayroll Tax Refund Through The Employee Retention Credit
Employee Retention credit (ERC), a refundable income tax credit, is available to businesses for wages paid by them during the COVID-19 epidemic.It was created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March 2020 to help businesses keep their employees on the payroll, even if they were unable to operate normally.
ERCs are available to all businesses, even tax-exempt ones.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.
ERCs can be a major financial boost for companies that have suffered from pandemic effects.It can be used to help businesses keep their employees, cover their payroll costs and invest for 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 was established to assist businesses in keeping their employees employed so they can quickly reopen, resume normal operations and regain control of the situation once the pandemic has subsided.
ERC Benefits
The ERC can provide a significant financial boost to businesses that have been impacted by the pandemic.The ERC can help businesses retain employees, which is crucial for a rapid recovery.
The ERC is a refundable tax credit, meaning that businesses can claim it even if they do not owe any taxes.Businesses can claim the ERC on wages paid to employees that are not working because of COVID-19. This includes employees who have been furloughed, quarantined, or are otherwise not allowed to work. Payroll Tax Refund Through The 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 companies to weather the economic storm and remain afloat.
The ERC is estimated to have saved over 10 million jobs and prevented hundreds of thousands of businesses from closing their doors.It has also contributed to the economic recovery by boosting consumer spending and investment.
> > Click Here to Find Out if You Are Eligible for ERC< <
Eligibility
The decline in gross revenues test is the major difference between the ERC 2020 and ERC 2021 requirements.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, the business must have suffered from a significant fall in gross sales of at least 20% when compared to same quarter in previous year.
Business Qualifications
Businesses can qualify for the ERC in two 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.This includes businesses that have been ordered to close, operate at a reduced capacity, or follow certain restrictions.
- 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 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.
Example Scenarios
These examples and scenarios illustrate the criteria for each:
An order of the government may suspend all or part of a program.
- 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:
- ERC eligibility is granted to retail stores who experience a sales decline of 50% due to 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 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.A business could receive credit up to $7000 per employee, per quarter for the three first quarters of the year 2021.
> > Click Here to Find Out if You Are Eligible for ERC< <
Claiming Credit
How to Claim ERC for Federal Employment Tax Returns
To claim the Employee Retention Credit (ERC) on federal employment tax returns, businesses must file an amended Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.This form may be used for any quarter that the business is eligible for the credit.
Claim the ERC by Claiming it in Advance
Businesses have three choices for claiming ERCs:
- 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 may also reduce their quarterly tax deposits on employment by the credit amount they expect.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 Amount of the Credit and Avoiding Double-dipping with Other Relief Programs
Multiplying employee wages with the applicable credit rate will give you the ERC.Credit rate is set at 50% for 2020 and 70% for the three first 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 Documentation
Businesses must keep detailed records on all wages paid during 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. Payroll Tax Refund Through The Employee Retention Credit
Here are a few tips for documenting and keeping records:
- All payroll records should be kept, including W-2s and Forms 941s.
- Keep track of every employee’s hours, including sick time, holiday, and vacation.
- Track all employee wages, including bonuses, overtime, and base pay.
- Keep track of any government orders that affected the business’s operations.
The IRS offers a number of resources that can help businesses claim their ERC. These include FAQs, factsheets, 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 have been affected by the COVID-19 Pandemic can apply for the Employee Retention Credit.Here are some businesses that could be eligible for Employee Retention Credit.
- Restaurants closed due to government orders
- 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
- Donations to nonprofit organizations have declined
- Hotels and other hospitality business
- Travel and Tourism Businesses
- Entertainment and event businesses
- Personal care businesses
- Gyms, fitness studios
- Salons and spas
- Retail shops selling non-essential items
- Businesses that have been required to operate in a reduced capacity
- Businesses that were forced to implement new safety measures and protocols
- Businesses that experienced increased costs due to COVID-19
The ERC may also be available to businesses that were suspended or partially by government orders or experienced a substantial decline in gross revenues due to COVID-19. Payroll Tax Refund Through The Employee Retention Credit
Here are some examples of how companies have used the ERC in specific situations:
- 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 was used by a manufacturer that could not operate at full capacity due to disruptions in the supply chain to keep employees employed and continue production of essential goods.
- 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.
If you own a company and are not sure if you are eligible, I recommend that you contact a qualified tax professional.They can determine your qualification and help you claim the credit.
> > 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 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 warnings and red flags for identifying potential ERC fraudsters:
- They will refund you without looking at your records.
- They charge you high upfront fees or a certain percentage of your refund.
- The salespeople are aggressive and use high-pressure tactics. Payroll Tax Refund Through The Employee Retention Credit
- They do not belong to an organization that is reputable.
- You will be asked to provide your personal information or financial details upfront.
Reporting Suspicious Actors and Protecting Your Personal Information
If you have been contacted by an ERC scammer , you should notify the IRS .Call 1-800-829-1040 to report the scam or visit the IRS website.
Protecting your financial and personal information is also important.Never give out personal information to someone who contacts you without your permission.If you’re not sure if a company is legit or not, you should check reviews online. You can also contact the IRS.
> > Click Here to Find Out if You Are Eligible for ERC< <
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.The ERC has been explained in detail, including the eligibility requirements and the claim process.
We’ve also included some resources and advice on recordkeeping.The ERC provides a valuable incentive that helps employers to reduce their payroll tax liability, improve the cash flow of their business, and provide support for their employees.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< <
Frequently Asked Questions about Employee Retention Credits
Payroll Tax Refund Through The Employee Retention Credit
What is ERC?
The COVID-19 pandemic has impacted businesses. A refundable tax credit is available.
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 ERC funding?
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 qualified wage?
The wages that qualify as wages include salaries, wages, tips, and bonuses.
All wages that are qualified include health insurance premiums paid to the employer.
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 941 X must be submitted within three years from the original date of Form 941.
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 ERC if I received a loan from PPP?
Yes, businesses can claim the ERC even if they received a PPP loan (Paycheck Protection Program).
The ERC cannot be claimed for wages used to obtain a PPP loan.
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 organisations claim ERC?
Yes, organizations that are not for profit can qualify for the ERC.
Nonprofit organizations may claim the ERC by submitting Form 990-T.
Can companies that own a foreign affiliate claim ERCs?
Businesses can claim ERC for the wages they pay to foreign-based employees.
It is important to note that there are additional requirements for claiming the tax credit.
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:
- The credit calculation is incorrect
- Failure to include all qualified wages
- The failure to amend Form 941-X in time.