COVID-19 has caused massive damage to businesses of every size, with many being forced to cut staff or shut down their doors.The Employee Retention Credit can be a lifeline for businesses struggling to stay afloat.
The ERC is an refundable tax credit which businesses can claim for wages that were paid to their employees during the pandemic.It was designed to encourage businesses to continue to pay their employees even if normal operations are not possible.
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.
The Employee Retention CreditState Conformity 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 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.
ERC is open to businesses and organizations of all sizes.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.
The ERC is able to provide significant financial support for businesses affected by the pandemic.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 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 can be a major financial boost for businesses who have been affected by the pandemic.It can also be used to retain staff, which is important for a swift 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 ERC for qualified wages paid to employees not working as a result of COVID-19. For example, employees are furloughed from work or quarantined. State Conformity Employee Retention Credit
Impact of ERCs on the Economy and Businesses
The ERC has helped to keep millions of Americans employed during the COVID-19 pandemic.It also helped businesses weather the storm and stay afloat.
ERC saved 10 million jobs. Thousands of businesses were prevented from closing.It has also contributed to the economic recovery by boosting consumer spending and investment.
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 will have to experience a significant decrease in gross revenues of at least 20 percent compared with the same quarter last year.
Businesses can qualify for the ERC in two ways:
- Fully or partially suspended by a government order: A business that has been fully or partially suspended by a government order due to COVID-19 is eligible for the ERC.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 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.
Examples and Scenarios
Here are some examples and scenarios to illustrate each eligibility criterion:
Full or partial suspension by government order
- ERC may be available for a restaurant that has to close because of a government directive.
- 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.
- ERCs are available for manufacturers that cannot operate at their full capacity as a result of disruptions in supply chains.
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 of the credit varies depending on the quarter and the number of employees a business has.
For 2020, a credit equal to 50 percent of wages paid to qualified employees is available up to a limit of $10,000.This could mean that an employer can get a credit up to $5,000 for 2020.
For the first quarters of 2021, the credit equals 70% of wages that are qualified. However, this is limited to $10,000 per quarter per employee.This means a company could receive a credit for up to $7,000 for each employee per quarter in the first three months of 2021. The total for the entire year is up to $21,000.
Claim the Credit
How to Claim the ERC on Federal Employment Tax Returns
Businesses that wish to claim the Employee Retention credit (ERC), on their federal employment tax returns must use Form 941-X, Revised Employer’s Quarterly Tax Return, or Claim for Refund.This form can be submitted for any quarter where the business was entitled to the credit.
Claim the ERC by Claiming it in Advance
Businesses can claim the ERC in three ways:
- Claim the credit ahead of time: Businesses may claim the credit by reducing the quarterly employment tax deposit.To do this, businesses must file Form 7200, Advance Payment of Employer Credits and Taxes, with the IRS.
- Businesses may also reduce their quarterly tax deposits on employment by the credit amount they expect.Businesses must submit Form 941 to the IRS, indicating the amount they want to reduce their deposit by.
- Businesses can ask for a refund if they have already paid the employment tax. They should file Form 941-X at 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%.
Businesses should be aware of the dangers of double-dipping.Businesses cannot, for example, claim the ERC on wages they also claim as part of the Paid Family Medical Leave Credit and 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 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. State Conformity 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 at all times of employee hours, including vacation, sick and holiday leave.
- Keep track of the wages you pay to your employees. This includes base wage, bonuses, and overtime pay.
- Keep track of all government orders that 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 also call 1-800-829-1040 to get help from the IRS.
Examples of Eligible Businesses
Businesses that are affected by COVID-19 can receive the Employee Retention (ERC).The following are examples of businesses that may be eligible for the Employee Retention Credit (ERC):
- Restaurants closed due to government orders
- Retail stores which experienced a significant decrease in sales
- Due to disruptions in the supply chain, manufacturers are not able to operate at their full capacity
- Donations for nonprofit organizations are down
- 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 that sell non-essential products
- Businesses that have been required to operate in a reduced capacity
- Businesses forced to adopt new safety protocols and measures
- Costs incurred by businesses as a result of 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. State Conformity 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.
- A retail store which experienced a drop of 50% in sales due COVID-19 could offset its payroll expenses by using the ERC.
- 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 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 determine your qualification and help you claim the credit.
ERC Scams, Aggressive Marketing and Other Risks
Unfortunately, there are scammers who are trying to take advantage of businesses that are eligible for the Employee Retention Credit (ERC).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
Here are some warning signs and red flags to identify potential ERC scammers:
- They promise to get you a refund without reviewing your records.
- The fees are high, or they take a large percentage of the refund.
- Sales tactics are high-pressure. State Conformity Employee Retention Credit
- They are not affiliated to a reputable organization of tax professionals.
- Some companies will ask for personal or financial details upfront.
Reporting Suspicious Activities and Protecting Personal Information
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.
Protecting personal information and financial data is equally important.Do not share your personal data with anyone who contacts uninvited.If you’re not sure if a company is legit or not, you should check reviews online. You can also contact the IRS.
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.We have discussed the ERC eligibility requirements, claim process and potential scams.
We’ve also included some resources and advice on recordkeeping.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.We encourage eligible employers to claim this credit and, if necessary, seek professional help.
Employee Retention Bonus Frequently Answered Questions
State Conformity Employee Retention Credit
What is ERC?
Businesses that have been affected by the COVID-19 epidemic can claim a refundable credit.
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 to apply for 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 a qualified wage?
Salary, wages, bonuses, and tips are all considered to be wages.
Also, health insurance premiums that employers pay are considered wages.
How can I claim my ERC?
Businesses can claim ERCs by filing amended Forms 941 or 941-X at 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?
The ERC, however, is a non-refundable tax credit.
Can I claim ERC even if I have 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 the ERC?
Self-employed individuals can apply for the ERC.
Self-employed individuals can claim the ERC on their Schedule C form.
Can non-profit organizations claim ERC?
Yes, non-profit organizations are eligible to apply for ERC.
Nonprofit organizations are eligible to claim the ERC when filing their Forms 990-T.
Can companies with a foreign subsidiary claim ERC?
Businesses can claim ERC for the wages they pay to foreign-based employees.
There are a few additional requirements to meet before you can claim the benefit.
Are there any common mistakes made by businesses when claiming ERC that they should be on the lookout for?
Some common mistakes businesses need to watch out for when claiming their ERC include but are not limited to
- Wrong calculation on credit
- Include all wages that qualify
- Failure to amend Form 941-X on time.