COVID-19, a pandemic that has affected businesses of all types and sizes, has forced many to either lay off staff or close their business.Employee Retention (ERC) Credit is available to businesses that need it.
The ERC is an refundable tax credit which businesses can claim for wages that were paid to their employees during the pandemic.It’s designed to help employers keep their employees, even if the business is unable to function 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.
-a}
The Employee Retention CreditQualified 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 established by the Coronavirus Aid, Relief, and Economic Security Act in March 2020 in order to help businesses retain their employees, even if it meant they could not operate normally.
ERCs can be obtained by businesses of any size, including those exempt from tax.To be eligible, a business must have experienced a significant decline in gross receipts or have been fully or partially suspended due to a COVID-19-related government order.
The ERC is able to provide significant financial support for businesses affected by the pandemic.It can assist businesses in retaining their employees, covering payroll costs, as well as investing in their future.
Why was ERC formed?
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
The ERC can provide a significant financial boost to businesses that have been impacted by the pandemic.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 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. Qualified Employee Retention Credit
Impact of the ERC on Businesses and the Economy
The ERC helped keep millions of Americans in employment during the COVID-19 Pandemic.It has also helped businesses to stay afloat and weather the economic storm.
ERC was estimated to have saved 10 million jobs and prevented thousands of businesses from closing.It also contributed to the recovery of the economy by increasing consumer spending, and investing.
> > 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, 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 will have to experience a significant decrease in gross revenues of at least 20 percent compared with the same quarter last year.
Business Qualifications
There are two ways that businesses can qualify for ERC:
- ERC eligibility is based on whether the business has been suspended completely or in part due to 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 drop in gross sales: A business experiencing a significant loss in gross sales due to COVID-19 can also apply for the ERC.Significant decline in gross revenues is defined as at least a 50% decline in a quarterly in 2020, or at least a 20% decline in a quarterly in 2021 when compared with the same quarter the previous year.
Example 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 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:
- A retail store that experiences a 50% decline in sales due to COVID-19 is eligible for the ERC.
- ERC eligibility is for a manufacturer who is not able to operate at maximum capacity due to disruptions in the supply chain.
> > Click Here to Find Out if You Are Eligible for ERC< <
Credit Amount
The Employee Retention Credit (ERC) is a tax credit that businesses can claim for qualified wages paid to employees during the COVID-19 pandemic.The amount of credit depends on the number of employees and the quarter.
In 2020, the credit will be equal to half of all wages that employees are entitled to receive up to $10,000.This means that a business could receive a credit of up to $5,000 per employee for 2020.
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.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.
> > Click Here to Find Out if You Are Eligible for ERC< <
Claiming Credit
How to Claim the ERC on Federal Employment Tax Returns
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 filed for any quarter in which the business was eligible for the credit.
Options for Claiming the ERC in Advance
Businesses have three options to claim the ERC.
- Claim the credit in advance: Businesses can claim the credit in advance by reducing their quarterly employment tax deposits.To do this, business must file IRS Form 7220, Advance Payment for Employer Credits & Taxes.
- Reduce employment tax deposits: Businesses can also reduce their quarterly employment tax deposits by the amount of the credit they expect to receive.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 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 Credit Amount and Avoiding Double Dipping with Other Relief Programs
The amount of the ERC is calculated by multiplying the qualified wages paid to employees by the applicable credit rate.The credit rates for 2020 are 50% and 70% in the first 3 quarters of 2021.
Businesses should be aware of the dangers of double-dipping.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 keep detailed records detailing all qualified wages paid by employers to employees over 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. Qualified Employee Retention Credit
Here are a couple of tips to help you with your recordkeeping:
- Keep a record of all your payroll documents, such as W-2 forms and 941s.
- Keep track of all hours worked by employees, including vacation, sick, and holiday time.
- 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 offers a number of resources that can help businesses claim their ERC. These include FAQs, factsheets, and videos.Businesses can contact the IRS by calling 1-800-829-1040.
> > Click Here to Find Out if You Are Eligible for ERC< <
Examples of Eligible Businesses
The Employee Retention Credit (ERC) is available to businesses that have been impacted by the COVID-19 pandemic.The following are examples of businesses that may be eligible for the Employee Retention Credit (ERC):
- Restaurants forced to close due to government orders
- Retail stores which experienced a significant decrease in sales
- Disruptions in the supply chains prevent manufacturers from working at full capacity
- Donations to nonprofit organizations have declined
- Hotels and hospitality businesses
- Travel and tourism businesses
- Entertainment and Event Businesses
- Personal care businesses
- Gyms & fitness studios
- Salons and spas
- Retail stores selling non-essential goods
- Businesses that were required to operate at a reduced capacity
- Businesses forced to adopt new safety protocols and measures
- 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. Qualified Employee Retention Credit
Here are some examples that show how businesses have used ERCs:
- The ERC allowed a restaurant to retain its staff after it was forced to shut down for several months by government order.
- A retail store which experienced a drop of 50% in sales due COVID-19 could offset its payroll expenses by using the ERC.
- ERC can be used by a producer who is unable operate at maximum capacity due to disruptions of the supply chain. This allows them to keep their employees and continue producing essential products.
- 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.
You should contact a professional tax advisor if, as a small business owner, you have any doubts about your eligibility for the ERC.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).Scammers will use aggressive marketing techniques to get businesses to sign up, even if they are not eligible for ERC.
Red Flags and Warning Signs
There are warning signs that could indicate an ERC scammer.
- They promise you will get a refund even if they don’t review your records.
- They charge high upfront fees or a percentage of your refund.
- These salespeople use high-pressure tactics. Qualified 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 Activity and Protecting Personal Data
You should contact the IRS if you receive a call from an ERC scammer.You can report this activity by calling 1-800-829-1040.
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 have any doubts about the legitimacy of a business, you can look at their online reviews or ask for help from the IRS.
> > Click Here to Find Out if You Are Eligible for ERC< <
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.The ERC has been explained in detail, including the eligibility requirements and the claim process.
We have also provided tips and resources on recordkeeping and documentation.ERCs are a valuable tool that employers can use to lower their employment tax liability and improve their cash flow. They also help support their workforce.If you are an eligible employer, we encourage you to claim the credit and seek professional assistance if needed.
> > Click Here to Find Out if You Are Eligible for ERC< <
Employee Retention Credit: Frequently Asked Questions
Qualified Employee Retention Credit
What is ERC?
It is a refundable tax credit available to businesses that were impacted by the COVID-19 pandemic.
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 receive the ERC?
Eligible companies for the ERC are those businesses that experienced a significant fall in gross sales or were partially or completely suspended because of government orders triggered by the COVID-19 outbreak.
What is qualified wage?
The wages that qualify as wages include salaries, wages, tips, and bonuses.
Employer-paid health insurance premiums also qualify as 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 941 X must be submitted within three years from the original date of Form 941.
Do I need to repay the ERC?
The ERC is not a tax credit that needs to be repaid.
Can I claim the ERC if I received a PPP loan?
You can still claim an ERC even though you received a loan through the Paycheck Protection Programme (PPP).
Businesses cannot claim the ERC for wages that were also used to claim the PPP loan.
Can self-employed individuals claim ERC?
Self-employed individuals can apply for the ERC.
The Schedule C can be used by self-employed individuals to claim the ERC.
Can non-profit organizations claim ERC?
Yes, organizations that are not for profit can qualify for the ERC.
Nonprofits may claim ERCs on their Form 990T.
Can companies that own a foreign affiliate claim ERCs?
Yes, businesses can claim the ERC for wages paid to employees of foreign subsidiaries.
There are a few additional requirements to meet before you can claim the benefit.
What are the common mistakes businesses make when they claim ERC?
You should be on the lookout for these common mistakes when businesses claim their ERC.
- The credit calculation is incorrect
- Failure to include all qualified wages
- Failing to amend Forms 941-X within the specified timeframe.