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 Bonus (ERB) is a way to keep businesses afloat.
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 can be very helpful to business owners who have been impacted. It will keep employees motivated and help your business stay afloat.If you want to know more about the ERC or how to claim it visit the IRS’ website, consult a tax advisor or continue reading 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 CreditWhen Is The Deadline For 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.
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.
The ERC provides a financial boost for businesses that are affected by pandemic.It can help businesses retain their employees, cover payroll costs, and invest in their future.
Why was ERC created?
The COVID-19 Pandemic caused an economic downturn that forced many businesses either to layoff employees or shut their doors.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.It can also assist businesses in retaining their employees. This is vital for a fast 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 may also claim ERCs on qualified wages for employees who cannot work because of COVID-19. These employees include those who are furloughed. When Is The Deadline For Employee Retention Credit
Impact of the ERC on Businesses and the Economy
The ERC kept millions of Americans employed throughout the COVID-19 epidemic.The ERC also helped to keep businesses afloat through the economic storm.
It is estimated that the ERC has saved more than 10 million jobs, and prevented hundreds of thousands of businesses from shutting their doors.The ERC also contributed positively to the recovery in terms of consumer spending as well as investment.
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Eligibility
The Employee Retention Credit (ERC) can be claimed by businesses that have suffered a decline in gross sales or been suspended because of a COVID-19 government order.
The main difference between the 2020 and 2021 ERC requirements is the gross receipts decline test.In 2020, a business must have experienced a significant decline in gross receipts of at least 50% compared to the same quarter in 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.
Business Qualifications
Two ways exist for businesses to qualify for the ERC:
- ERC eligibility is based on whether the business has been suspended completely or in part due to COVID-19.This includes businesses who have been ordered closed, to operate at a lower capacity, or to follow certain restrictions.
- Significant decline of gross receipts. A business which has seen a significant fall in its gross receipts because of COVID-19, is also eligible to receive the ERC.Significant decline in Gross Receipts: A business that has experienced a significant decline in its gross receipts due to COVID-19 is also eligible for the ERC.
Examples and Scenarios
Here are some examples and scenarios to illustrate each eligibility criterion:
Full or partial suspension by government order
- ERC is available to restaurants that are forced to close by a government order.
- 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 Credit is a tax deduction that businesses may claim on wages they paid employees in the COVID-19 pandemic.The credit amount varies according to the quarter and number of employees of a business.
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.A business could receive credit up to $7000 per employee, per quarter for the three first quarters of the year 2021.
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Claim your Credit
How to Claim ERC in Federal Employment Taxreturn
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 is applicable to any quarter during which the business qualifies for the credit.
Options for Claiming the ERC in Advance
Businesses have three options for claiming the ERC:
- Claim your credit in Advance: Businesses can take advantage of the credit by reducing deposits made quarterly for employment tax.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.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 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.Credit rate is set at 50% for 2020 and 70% for the three first 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 Documenation
Businesses must keep detailed records on all wages paid during 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. When Is The Deadline For Employee Retention Credit
Here are a couple of tips to help you with your recordkeeping:
- Keep a copy of all records of your payroll, including the W-2 and Form 941.
- Keep track at all times of employee hours, including vacation, sick and holiday leave.
- Keep track of all the wages that employees receive, including overtime, bonuses, and base wages.
- Keep track of all government orders that affect your business.
The IRS provides many resources to assist businesses in claiming the ERC. They include fact sheets, videos, and FAQs.Businesses can also contact the IRS for assistance 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.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 that experienced a significant decline in sales
- Manufacturers unable to operate at full capacity due to supply chain disruptions
- Donations to nonprofit organizations have declined
- Hotels and other hospitality enterprises
- Travel and tourism business
- Entertainment and event businesses
- Personal care businesses
- Gyms, fitness studios
- Salons & spas
- Retail stores that sell non-essential products
- Businesses that had to operate on a lower capacity
- Businesses that were forced to implement new safety measures and protocols
- Costs increased for businesses due to COVID-19
ERCs may be awarded to any business, including those that were fully or partially closed by a government order and/or experienced a significant decrease in gross receipts because of COVID-19. When Is The Deadline For Employee Retention Credit
Below are some specific examples on how businesses have utilized the ERC.
- A restaurant, which was forced to close due to an order from the government for a period of several months, was able use the ERC in order to keep their employees on the payroll.
- The ERC was used by a retail store to offset payroll costs after it experienced a 50% drop in sales as a result of COVID-19.
- 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.
- The ERC allowed a nonprofit organization to continue providing essential services despite a decline in donations due to COVID-19.
Contact a tax expert if you’re a business owner who is unsure if you qualify for the ERC.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
ERC Scams, Aggressive Marketing and Other Risks
Unfortunately, there are scammers that try to take advantage business owners who are eligible for Employee Retention Credits (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.
Red Flags and Warning Signs
These warning signs will help you identify possible ERC scammers.
- They promise to get you a refund without reviewing your records.
- You will be charged high fees upfront, or a percentage of your refund.
- High-pressure sales tactics are used. When Is The Deadline For Employee Retention Credit
- They do not belong to an organization that is reputable.
- Your personal or financial data is requested upfront.
Reporting Suspicious Activity and Protecting Personal Data
You should contact the IRS if you receive a call from an ERC scammer.You can call 1-800-829-1040 for more information or go to the IRS web site.
You should also be careful to protect your personal and financial information.Do not share your personal data with anyone who contacts uninvited.You can find reviews of a company online, or you can contact the IRS if you’re unsure.
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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.We have discussed eligibility requirements, claiming processes, and possible scams related the ERC.
We also have some tips and materials for documenting your records.The ERC offers employers a valuable opportunity to reduce their tax liabilities, improve cash flow and support the workforce.We encourage eligible employers to claim this credit and, if necessary, seek professional help.
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Employee Retention Credit Frequently Asked Questions:
When Is The Deadline For Employee Retention Credit
What is the 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?
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?
Included in qualifying wages are wages, salaries, and tips paid to employees.
Employer-paid health insurance premiums also qualify as wages.
How do I claim ERC?
The IRS allows businesses to claim ERCs if they file an amended Form 951, or Form 951,-X.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?
No, it is a refundable credit.
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 can’t claim ERC on wages they used for PPP loans.
Can self-employed individuals claim ERC?
Yes, self-employed individuals are eligible for the ERC.
Schedule C is the form that self-employed people can use to claim their ERC.
Can non-profit organizations claim ERC?
Nonprofit organizations can apply for the ERC.
Nonprofits may claim ERCs on their Form 990T.
Can companies that own a foreign affiliate claim ERCs?
Businesses can claim ERC for the wages they pay to foreign-based employees.
Before you can get it, however, you must meet some additional requirements.
What are the common mistakes businesses make when they claim ERC?
When claiming your ERC; businesses must be aware of the following mistakes:
- Wrong calculation on credit
- Include all wages that qualify
- Failure to amend Forms 901-X by deadline