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 allows businesses to claim a tax credit on wages paid during a pandemic.The ERC is intended to keep employees employed, even when businesses are unable operate 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.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.
-a}
Employee Retention CreditRefundable Vs Non Refundable Employee Retention Tax 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.For a business to be eligible, it must have suffered a significant decrease in gross revenues or been partially or completely suspended by a government order related to COVID-19.
The ERC can provide a significant financial boost to businesses that have been impacted by the 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 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
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.
The ERC is also a refundable credit. This means that businesses are able to claim it, even if there are no taxes due.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. Refundable Vs Non Refundable Employee Retention Tax 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 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 test for a decline in gross receipts is the main difference between 2020 and 2021 ERC.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, 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.The ERC is available to businesses that have been told to close or operate at reduced capacity.
- Significant decline in gross revenues: Businesses that have experienced a significant drop in gross revenue due to COVID-19 are also eligible for 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:
Orders from the government can be used to suspend or fully suspend your work.
- ERC may be available for a restaurant that has to close because of a government directive.
- ERC can be awarded to a fitness center that has to operate on a reduced basis due to an order from the government based on COVID-19.
Significant decline in gross receipts:
- ERC can be awarded to a retail store that has experienced a 50% decrease in sales because of COVID-19.
- 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
Employee Retention Credit is a tax deduction that businesses may claim on wages they paid employees in 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.
The credit for the first three quarters of 2021 is 70% of the qualified wages paid by employees. This maximum amount per employee per quarter is $10,000.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< <
Claim your Credit
How to Claim ERC on 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 in Advance
There are three options available to businesses for claiming 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 taxes deposits. Businesses are also able to reduce their quarterly employment tax deposits by the amount expected credit.Businesses must submit Form 941 to the IRS, indicating the amount they want to reduce their deposit 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
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.
Avoid double-dipping when it comes to other relief programs.For example businesses cannot claim ERC for wages used to claim Paid Family and medical leave credit or the 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 help businesses to accurately calculate the amount of the credit they are eligible for and to support their claim if it is audited by the IRS. Refundable Vs Non Refundable Employee Retention Tax Credit
Here are some tips for recordkeeping and documentation:
- 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.
- Track all employee wages, including bonuses, overtime, and base pay.
- Keep track of all government orders that affect your business.
IRS provides various resources, such as fact sheets and videos, to help businesses claim the ERC.Businesses can contact IRS for help by calling 1-800-829-1040.
> > 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.Below are some business examples that may be eligible for Employee Retention Credit.
- Restaurants forced to shut down due to government order
- Retail stores which experienced a significant decrease in sales
- Supply chain disruptions prevent manufacturers from operating at full capacity
- Donations of nonprofit organizations declined
- Hotels and other hospitality businesses
- Travel and tourism businesses
- Entertainment and Event Businesses
- Personal care businesses
- Gyms and fitness studios
- Salons and spas
- Retail stores selling non-essential goods
- Businesses that were required to operate at a reduced capacity
- Businesses that are forced to implement new safety protocols
- Costs increased for businesses 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. Refundable Vs Non Refundable Employee Retention Tax Credit
Here are some examples of how companies have used the ERC in specific situations:
- 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.
- 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 own a company and are not sure if you are eligible, I recommend that you contact a qualified tax professional.They can help you to determine your eligibility and to claim the credit if you are eligible.
> > Click Here to Find Out if You Are Eligible for ERC< <
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 may use aggressive marketing tactics to try to convince businesses to sign up for their services, even if the business is not eligible for the ERC.
Warning Signs and Red Flags
There are warning signs that could indicate an ERC scammer.
- 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.
- The salespeople are aggressive and use high-pressure tactics. Refundable Vs Non Refundable Employee Retention Tax Credit
- They are not affiliated with a reputable tax professional organization.
- Your personal or financial data is requested upfront.
Reporting Suspicious Activity and Protecting Personal Data
If you have been contacted by an ERC scammer , you should notify the IRS .You can do this by calling 1-800-829-1040 or by visiting the IRS website.
It is important to safeguard your personal and financial data.Do not give your personal information to anyone who contacts you unsolicited.If you want to know if a particular business is legit, check online reviews. Or contact the IRS.
> > Click Here to Find Out if You Are Eligible for ERC< <
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 the ERC eligibility requirements, claim process and potential scams.
We also have some tips and materials for documenting your records.The ERC is a valuable benefit that can help employers reduce their employment tax liability, improve their cash flow, and support their workforce.If you’re an eligible employer, you should claim the credit. You can also seek professional advice if you need it.
> > Click Here to Find Out if You Are Eligible for ERC< <
Employee Retention Credit Frequently Asked Questions:
Refundable Vs Non Refundable Employee Retention Tax Credit
What is ERC?
Businesses affected by COVID-19 can apply for a refundable income tax credit.
This credit is equal in value to 50% of wages qualified to be paid in 2020. It is also equal in value to 70% of wages qualified to be paid in the first 3 quarters of 2021.
Who can receive 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 qualified wage?
Salary, wages, bonuses, and tips are all considered to be wages.
All wages that are qualified include health insurance premiums paid to the employer.
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 must be filed within three years of the date the original Form 941 was filed.
Do I have to repay my ERC?
The ERC is not a tax credit that needs to be repaid.
Can I claim the ERC if I received a PPP loan?
Yes, businesses can claim the ERC even if they received a PPP loan (Paycheck Protection Program).
Businesses cannot claim the ERC for wages that were also used to claim the PPP loan.
Can self-employed people claim the ERC?
Yes, the ERC is available to self-employed people.
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 are eligible to claim the ERC when filing their Forms 990-T.
Can companies that own a foreign affiliate claim ERCs?
Yes, businesses can claim the ERC for wages paid to employees of foreign subsidiaries.
It is important to note that there are additional requirements for claiming the tax credit.
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
- Calculation error on credit
- Failure to include all qualified wages
- Failure to amend Forms 901-X by deadline