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 Bonus (ERB) is a way to keep businesses afloat.
The ERC is an refundable tax credit which businesses can claim for wages that were paid to their employees during the pandemic.It is designed to help businesses keep their employees on payroll, even if they are unable to operate normally.
The ERC is a great way to keep your employees engaged and your business running smoothly if you’re a business owner impacted by the pandemic.To learn more about the ERC and how to claim it, visit the IRS website, speak with a 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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The Employee Retention CreditQ4 2023 Employee Retention Credit
Employee Retention (ERC) Credit is a refundable credit that businesses may claim on wages paid during the COVID-19 pandemic.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 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.
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 formed?
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
The ERC can provide a significant financial boost to businesses that have been impacted by the pandemic.It can also be used to retain staff, which is important for a swift recovery.
The ERC can be claimed by businesses even if no taxes are due.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. Q4 2023 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 has helped many businesses stay afloat during the COVID-19 pandemic.
ERC may have prevented the closure of hundreds of thousands of businesses and saved over 10,000,000 jobs.It has also contributed towards the economic recovery through a boost in consumer spending and investment.
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Eligibility
For businesses affected by COVID-19, the Employee Retention Credit can help them retain their employees.
The decline in gross revenues test is the major difference between the ERC 2020 and ERC 2021 requirements.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
Business can qualify in two ways for the ERC
- 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.
Example Scenarios
Below are examples and scenarios that illustrate each of the eligibility criteria:
An order of the government may suspend all or part of a program.
- A restaurant that is forced to close due to a government order is eligible for the ERC.
- A gym that is required to operate at a reduced capacity due to a COVID-19-related government order is eligible for the ERC.
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 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 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.This could mean that an employer can get a credit up to $5,000 for 2020.
For the first three quarters of 2021, the credit is equal to 70% of qualified wages paid to employees, up to a maximum of $10,000 per quarter per employee.This means that a business could receive a credit of up to $7,000 per employee per quarter for the first three quarters of 2021, for a total of up to $21,000 per employee for the year.
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Claim your Credit
How to Claim ERC on Federal Employment Tax Returns
For businesses to claim Employee Retention Credit on federal employment taxes, they must amend Form 941X – Adjusted Employer’s quarterly Federal Tax Return (or Claim for refund) – in order to do so, they will need to file Form 941X.This form can also be filed for any other quarters in which a business may have been eligible for credit.
Options for Claiming the ERC in Advance
Businesses have three choices for claiming ERCs:
- Claim the credit in advance: Businesses can claim the credit in advance by reducing their quarterly employment tax deposits.For this to happen, businesses will need to submit IRS Form 7200 – Advance Payment of Taxes and Employer Credits.
- Reduce employment tax deposits: Businesses can also reduce their quarterly employment tax deposits by the amount of the credit they expect to receive.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 Amount of the Credit and Avoiding Double-dipping with Other Relief Programs
The ERC is calculated as the product of the employee’s qualified wage multiplied by the applicable credit rates.The credit rates for 2020 are 50% and 70% in the first 3 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 should maintain detailed records of the wages they paid to their employees 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. Q4 2023 Employee Retention Credit
Here are a few tips for documenting and keeping records:
- Keep a copy of all payroll records, including W-2 forms and Form 941s.
- Keep track of all hours worked by employees, including vacation, sick, and holiday time.
- Track all employee wages, including bonuses, overtime, and base pay.
- Keep track of all government orders that affect your business.
The IRS provides many resources to assist businesses in claiming the ERC. They include fact sheets, videos, and FAQs.Businesses can call the IRS at 1-800-829-1040 for assistance.
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Examples of Eligible Businesses
Businesses impacted by COVID-19 are eligible for the Employee retention credit (ERC).These are some examples of businesses who may qualify for the Employee Retention Credit.
- Restaurants forced to shut down due to government order
- Retail stores who experienced a significant drop in sales
- Manufacturing companies are unable to reach full capacity because of supply chain disruptions
- Non-profit organizations who saw their donations decrease
- Hotels and hospitality businesses
- Travel and tourism businesses
- Entertainment and Event Businesses
- Personal care businesses
- Gyms, fitness studios
- Salons & spas
- Retail shops selling non-essential items
- Businesses that had to operate on a lower capacity
- Businesses that are forced to implement new safety protocols
- Costs increased for businesses due to COVID-19
In addition to these examples, any business that was fully or partially suspended by a government order or that experienced a significant decline in gross receipts due to COVID-19 may be eligible for the ERC. Q4 2023 Employee Retention Credit
Here are a few examples of specific ways businesses have used their ERC:
- 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.
- An ERC offset the payroll costs of a retail shop that saw a 50% decrease in sales because of COVID-19.
- 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 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 are an owner of a business and are unsure as to whether you are eligible for ERC, then I would encourage you contact a tax specialist.They can help you to determine your eligibility and to claim the credit if you are eligible.
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Avoiding Scams
Risks of ERC Scams and Aggressive Marketing
Unfortunately, some scammers take advantage of companies that qualify for the Employee Retention Credit.These scammers can use aggressive marketing strategies to convince companies to sign-up for their services even when they are not eligible to receive the ERC.
Warning Signs and Red Flags
Here are some warnings and red flags for identifying potential ERC fraudsters:
- The company promises to give you a full refund without reviewing any of your records.
- They charge high fees upfront or take a portion of your refund.
- They use high-pressure sales tactics. Q4 2023 Employee Retention Credit
- They are not affiliated to a reputable organization of tax professionals.
- They ask for your personal or financial information upfront.
Reporting Suspicious Activity and Protecting Personal Data
If you are contacted by an ERC fraudster, you must report this activity to the 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.You should not provide your personal information to anyone contacting you 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 discussed eligibility requirements, claiming processes, and possible scams related the ERC.
We have also provided tips and resources on recordkeeping and documentation.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 Credit Frequently Asked Questions:
Q4 2023 Employee Retention Credit
What is ERC?
The COVID-19 pandemic has impacted businesses. A refundable tax credit is available.
This credit equals 50% of the qualified wages that employees received in 2020, and 70% of the qualified wages they receive in the first quarter of 2021.
Who is eligible for the ERC?
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 are qualified wages?
Qualified wages include wages, salaries, tips, and bonuses paid to employees.
Also, health insurance premiums that employers pay are considered wages.
How can I claim my ERC?
Businesses can claim the ERC by filing an amended Form 941 or Form 941-X with 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 pay back the ERC?
The ERC does not require repayment by businesses. It is a tax credit that can be used to offset future taxes.
Can I claim the ERC if I received a PPP loan?
The ERC is available to businesses who have taken out a PPP (Paycheck protection Program) loan.
Businesses cannot claim the ERC for wages that were also used to claim the PPP loan.
Can self-employed people claim the ERC?
Yes, individuals who are self-employed can qualify for the ERC.
Self-employed persons can claim ERC by completing Schedule C.
Can non-profit organizations claim ERC?
Yes, non-profit organizations are eligible to apply for ERC.
Nonprofits can claim ERC on Form 990 T.
Can companies with a foreign subsidiary claim ERC?
Businesses can claim ERC for the wages they pay to foreign-based employees.
That said, there are some additional requirements that must be met before they can claim it.
Are there common mistakes that businesses make when claiming ERC to watch out 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
- Failure to amend Form 941-X on time.