COVID-19 has caused massive damage to businesses of every size, with many being forced to cut staff or shut down their doors.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 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.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.
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The Employee Retention CreditUnclaimed Employee Retention Credit Scam
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.
Businesses of all sizes can apply for the ERC, even those that are tax-exempt.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.
ERCs can be a major financial boost for companies that have suffered from pandemic effects.The ERC can provide a significant financial boost to businesses that have been impacted by the pandemic.
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 was created to help businesses keep their employees on payroll so that they could quickly reopen and resume normal operations once the pandemic subsided.
ERC Benefits
ERC can offer a significant boost in financial support to businesses impacted negatively by the pandemic.The ERC can help businesses retain employees, which is crucial for a rapid 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. Unclaimed Employee Retention Credit Scam
Impact of ERC on Businesses and the Economy
The ERC was able to keep millions of Americans working during the COVID-19 pandemic.The ERC has helped many businesses stay afloat during the COVID-19 pandemic.
It is estimated that the ERC has saved more than 10 million jobs, and prevented hundreds of thousands of businesses from shutting their doors.It has also contributed towards the economic recovery through a boost in consumer spending and investment.
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Eligibility
The Employee Retention Credit (ERC) is a tax credit available to businesses that have been impacted by the COVID-19 pandemic. 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 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
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 ordered to close, reduce capacity or comply with certain restrictions are eligible for ERC.
- Significant decline in gross receipts: A business that has experienced a significant decline in gross receipts due to COVID-19 is also eligible 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.
Examples and Scenarios
Below are examples and scenarios that illustrate each of the eligibility criteria:
Orders from the government can be used to suspend or fully suspend your work.
- ERC can be claimed by a restaurant forced to shut down due to an order from the government.
- 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 eligibility is granted to retail stores who experience a sales decline of 50% due to COVID-19.
- A manufacturer that is unable to operate at full capacity due to supply chain disruptions is eligible for the ERC.
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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 varies depending on how many employees are employed and what quarter it is.
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 first quarters of 2021, the credit equals 70% of wages that are qualified. However, this is limited to $10,000 per quarter per employee.For the first three-quarters of 2021, a business can receive up to $7,000 in credit per employee. This could amount to up to $21,000 for each employee.
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Claim the Credit
How to Claim the ERC when Filing 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 is applicable to any quarter during which the business qualifies for the credit.
Claim the ERC in Advance
Businesses can claim the ERC in three ways:
- 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.
- Businesses can also reduce the quarterly employment tax deposit by the amount that they expect to get.To do so, businesses must fill out Form 941 at the IRS. They will need to indicate how much credit they intend to reduce.
- 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 Amount of the Credit 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 rates for 2020 are 50% and 70% in the first 3 quarters of 2021.
Businesses should avoid double-dipping on other relief programs.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 Documentation
Keep detailed records for all wages that were paid to employees in the ERC period.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. Unclaimed Employee Retention Credit Scam
Here are some tips for recordkeeping and documentation:
- 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.
- Keep track of the wages you pay to your employees. This includes base wage, bonuses, and overtime pay.
- Keep track of government orders affecting 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.
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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 shops that have experienced a substantial decline in sales
- Manufacturers unable to operate at full capacity due to supply chain disruptions
- Donations for nonprofit organizations are down
- Hotels and other hospitality enterprises
- Travel and Tourism Businesses
- Entertainment and event businesses
- Personal care businesses
- Gyms & fitness studios
- Salons & spas
- Retail stores selling non essential goods
- Businesses who were forced to operate with a reduced capacity
- Businesses that are forced to implement new safety protocols
- Costs incurred by businesses as a result of COVID-19
These examples are not the only ones that qualify. Any business that has been suspended in whole or part by an order of government or that has seen a decline in gross sales due to COVID-19 could also be eligible. Unclaimed Employee Retention Credit Scam
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.
- 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 organization whose donations declined due to COVID-19 used the ERC to retain its employees and continue providing essential 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.You can get help from a tax professional to determine your eligibility for the ERC and claim it if eligible.
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Avoiding Scams
Risks of ERC Scams and Aggressive Marketing
Scammers are targeting businesses eligible for the Employee Retention Credit.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
Here are some warning signs and red flags to identify potential ERC scammers:
- They will refund you without looking at your records.
- You will be charged high fees upfront, or a percentage of your refund.
- They use high-pressure sales tactics. Unclaimed Employee Retention Credit Scam
- They are not affiliated to a reputable organization of tax professionals.
- The first thing they ask you for is your personal and financial information.
Reporting Suspicious Activities and Protecting Personal Information
If you are contacted by an ERC fraudster, you must report this activity to the IRS.You can call 1-800-829-1040 for more information or go to the IRS web site.
Protecting personal information and financial data is equally important.You should not provide your personal information to anyone contacting you uninvited.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.
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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 explained the eligibility requirements, the claiming process, and the potential scams related to 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.If you are eligible, we encourage to claim credit. Professional assistance may be needed if required.
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Employee Retention Credit: Frequently Asked Questions
Unclaimed Employee Retention Credit Scam
What is ERC?
The COVID-19 pandemic has impacted businesses. A refundable tax credit is available.
This credit is equal to 50% the wages paid by employees to qualified employees in 2020. And 70% of the wages paid by employees to qualified employees in their first three quarters in 2021.
Who is eligible for ERC funding?
Businesses that have experienced a significant drop in gross receipts or those that were suspended or fully suspended by government orders due to the COVID-19 epidemic are eligible for the ERC.
What is qualified wage?
The wages that qualify as wages include salaries, wages, tips, and bonuses.
Also, health insurance premiums that employers pay are considered wages.
How do I claim ERC?
The IRS will accept amended Forms 941 and 941-X from businesses to claim the ERC.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 need to repay the ERC?
No, the ERC is a refundable tax credit, which means that businesses do not need to repay it.
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 ERC for salaries that are also used as collateral to borrow PPP loans.
Can self employed individuals claim ERC benefits?
Yes, you can get the ERC if you are a self-employed individual.
Self-employed individuals can claim the ERC on their Schedule C form.
Can non profit organizations 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?
You can claim ERC on wages paid to foreign subsidiaries.
There are a few additional requirements to meet before you can claim the benefit.
Are there mistakes that companies make in claiming ERCs?
You should be on the lookout for these common mistakes when businesses claim their ERC.
- The credit calculation is incorrect
- All wages are not included
- The failure to amend Form 941-X in time.