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 a refundable tax credit that businesses can claim on qualified wages paid to employees during the pandemic.The ERC is intended to keep employees employed, even when businesses are unable operate normally.
The ERC can be very helpful to business owners who have been impacted. It will keep employees motivated and help your business stay 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 CreditWhat Is The Employee Retention Credit And Who Qualifies
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.
The ERC is available to businesses of all sizes, including tax-exempt organizations.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 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 outbreak caused an economic slump that led many businesses, including small and large ones, to either lay off staff or shut down.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
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 is also a refundable credit. This means that businesses are able to claim it, even if there are no taxes 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. What Is The Employee Retention Credit And Who Qualifies
Impact of ERC on Business and the Economy
The ERC is credited with keeping millions of Americans at work during the COVID-19 outbreak.The ERC also helped to keep businesses afloat through the economic storm.
ERC may have prevented the closure of hundreds of thousands of businesses and saved over 10,000,000 jobs.It has also contributed to the economic recovery by boosting consumer spending and investment.
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Eligibility
The main difference between the 2020 and 2021 ERC requirements is the gross receipts decline test.In order to qualify for the 2020 ERC, businesses must have had a substantial decline in gross revenues of at least half compared with the same quarter last 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
The ERC is available to businesses in two different ways.
- ERC is available to businesses that have been suspended in whole or part by government orders due to COVID-19.This includes businesses that have been ordered to close, operate at a reduced capacity, or follow certain restrictions.
- 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 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.
Examples and Scenarios
The following are some scenarios and examples that will help you understand each 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.
- ERC may be available for a gym which is forced to operate at reduced capacity by a COVID-19 government order.
Significant decline in gross receipts:
- ERC eligibility is granted to retail stores who experience a sales decline of 50% due to COVID-19.
- ERC is available to manufacturers who are unable to run at full capacity because of supply chain disruptions.
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Credit Amount
Employee Retention Tax Credit (ERC), is a credit for businesses that can be claimed on qualified wages paid by employers to their employees during COVID-19.The amount of the credit varies depending on the quarter and the number of employees a business has.
Credits for 2020 are equal to 50% the qualified wages paid by employees, up to a maximum amount of $10,000 per employee.A business can receive up to $5,000 in credit per employee for the year 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 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.
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Claiming the Credit
How to Claim ERC in Federal Employment Taxreturn
To claim the Employee-Retention Credit (ERC), businesses must file a Form 941-941-X, Adjusted Employer Quarterly Federal Tax return or Claim of Refund.This form can be filed for any quarter in which the business was eligible for the credit.
Claim the ERC by Claiming it 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.For this to happen, businesses will need to submit IRS Form 7200 – Advance Payment of Taxes and Employer Credits.
- 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.
- Request a Refund: Businesses who have already paid their Employment Taxes can request to receive a refund for the credit by submitting Form 941X to the IRS.
Calculating the Credit Amount 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.Credit rate is set at 50% for 2020 and 70% for the three first quarters of 2021.
Businesses must be cautious to not double dip with other relief programmes.For example, businesses cannot claim the ERC for wages that are also used to claim the Paid Family and Medical Leave Credit or the Work Opportunity Tax Credit.
Tips and Resources for Recordkeeping and Documenation
Keep detailed records for all wages that were paid to employees in the ERC period.This will enable the business to calculate the credit amount accurately and provide evidence to support the claim, if audited. What Is The Employee Retention Credit And Who Qualifies
Here are some tips for recordkeeping and documentation:
- Keep a record of all your payroll documents, such as W-2 forms and 941s.
- Keep track of all the hours worked by your employees including holidays, sick days, and vacations.
- Keep track of every wage paid to an employee, including the base salary, bonuses, and overtime.
- Keep track of any government orders that affected the business’s operations.
The IRS provides a variety of resources to help businesses claim the ERC, including FAQs, fact sheets, and videos.Businesses can contact the IRS by calling 1-800-829-1040.
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Examples of Eligible Businesses
Businesses that have been affected by the COVID-19 Pandemic can apply for the Employee Retention Credit.These are some examples of businesses who may qualify for the Employee Retention Credit.
- Restaurants forced to close due to government orders
- Retail shops that have experienced a substantial decline in sales
- Supply chain disruptions prevent manufacturers from operating at full capacity
- Donations for nonprofit organizations are down
- Hotels and other hospitality enterprises
- Travel and tourism companies
- Entertainment and event business
- Personal care businesses
- Gyms and fitness studios
- Salons & spas
- Retail shops selling non-essential items
- Businesses that were required to operate at a reduced capacity
- Businesses that are forced to implement new safety protocols
- Businesses that experienced increased costs 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. What Is The Employee Retention Credit And Who Qualifies
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 that experienced a 50% decline in sales due to COVID-19 was able to use the ERC to offset its payroll costs.
- ERC allows a company to maintain its workforce and produce essential products despite being unable to run at full capacity.
- The ERC allowed a nonprofit organization to continue providing essential services despite a decline in donations due to COVID-19.
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 determine your eligibility as well as claim the credit for you if you’re eligible.
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Avoiding Scams
ERC Scams, Aggressive Marketing and Other Risks
Unfortunately, scammers try to take advantage businesses who qualify for the Employee Retention Credit.These scammers use aggressive marketing to convince businesses to subscribe to their services even if that business isn’t eligible for the Employee Retention Credit (ERC).
Warning Signs and Red Flags
Here are some warning signs and red flags to identify potential ERC scammers:
- They promise you will get a refund even if they don’t review your records.
- You will be charged high fees upfront, or a percentage of your refund.
- These salespeople use high-pressure tactics. What Is The Employee Retention Credit And Who Qualifies
- They are not members of a reputable professional tax organization.
- 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 scammer, you should report the activity to the IRS.You can do this by calling 1-800-829-1040 or by visiting the IRS website.
Protecting your financial and personal information is also important.Never give out personal information to someone who contacts you without your permission.If you are unsure whether or not a business is legitimate, you can check their reviews online or contact the IRS for assistance.
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Conclusion
In this article we discussed the Employees Retention Credit, tax-relief program that assists eligible employers in keeping their employees on the payroll during the COVID-19 epidemic.We have discussed eligibility requirements, claiming processes, and possible scams related the ERC.
Also, we have provided some resources and tips for documenting and keeping records.The ERC can be a valuable benefit for employers, helping them reduce their employment taxes, improve their cashflow, and support their employees.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
What Is The Employee Retention Credit And Who Qualifies
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 for the ERC?
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 a qualified wage?
Salary, wages, bonuses, and tips are all considered to be wages.
Health insurance premiums paid by the employer are also considered qualified wages.
How can I claim my ERC?
The IRS allows businesses to claim ERCs if they file an amended Form 951, or Form 951,-X.The amended 941-X form must be filed in three years following the original 941 filing date.
Do I have to repay my ERC?
No, the ERC is a refundable tax credit, which means that businesses do not need to repay it.
Can I claim ERC if I received a loan from PPP?
Yes, businesses can claim the ERC even if they received a PPP loan (Paycheck Protection Program).
Businesses cannot claim ERCs for wages they also claimed as PPPs.
Can self employed individuals claim ERC benefits?
Self-employed individuals can apply for the ERC.
Self-employed individuals can claim the ERC on their Schedule C form.
Can non-profit organisations claim ERC?
Yes, nonprofits are eligible for ERC.
Nonprofits can claim ERC on Form 990 T.
Can companies with a foreign subsidiary claim ERC?
Yes, businesses can claim the ERC for wages paid to employees of foreign subsidiaries.
However, they must also meet certain additional requirements before they are eligible to claim the benefits.
Are there any common mistakes made by businesses when claiming ERC that they should be on the lookout for?
There are a few common mistakes that businesses should avoid when claiming an ERC. These include but are not restricted to
- The credit calculation is incorrect
- Inclusion of all eligible wages
- The failure to amend Form 941-X in time.