The COVID-19 epidemic has caused havoc in businesses of all sizes. Many have been forced to close or lay off their employees.There is one lifeline that can help businesses remain afloat – the Employee Retention credit (ERC).
The ERC allows businesses to claim a tax credit on wages paid during a pandemic.It was designed to encourage businesses to continue to pay their employees even if normal operations are not possible.
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 CreditWhen Will Employee Retention Credit Be Paid
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.
The ERC is available to businesses of all sizes, including tax-exempt organizations.A business must be eligible if it has experienced a significant drop in gross receipts, or if they have been suspended or fully suspended because of a COVID-19 related government order.
The ERC can provide a significant financial boost to businesses that have been impacted by the pandemic.It can assist businesses in retaining their employees, covering payroll costs, as well as investing in their future.
Why was the ERC created?
The COVID-19 epidemic caused a severe downturn in the economy, which forced many businesses to close or lay off their employees.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.
Benefits of the ERC
The ERC can provide a significant financial boost to businesses that have been impacted by the pandemic.It can also be used to retain staff, which is important for a swift recovery.
The ERC can be claimed by businesses even if no taxes are 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. When Will Employee Retention Credit Be Paid
Impact of ERC on Businesses and the Economy
The ERC has helped to keep millions of Americans employed during the COVID-19 pandemic.It has also helped businesses to stay afloat and weather the economic storm.
The ERC is estimated to have saved over 10 million jobs and prevented hundreds of thousands of businesses from closing their doors.It also contributed to the recovery of the economy by increasing consumer spending, and investing.
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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 decline in gross revenues test is the major difference between the ERC 2020 and ERC 2021 requirements.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
There are two ways that businesses can qualify for ERC:
- ERC is available to businesses that have been suspended in whole or part by government orders due to COVID-19.The ERC is available to businesses that have been told to close or operate at reduced capacity.
- 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.A significant decline in gross receipts is defined as a decline of at least 50% in a quarter in 2020 or at least 20% in a quarter in 2021 compared to the same quarter in 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 is available to restaurants that are forced to close by a government order.
- The ERC is available to gyms that are required to operate with a reduced capacity because of a COVID-19-related government order.
Significant decline in gross receipts:
- A retail store that experiences a 50% decline in sales due to COVID-19 is eligible for the ERC.
- ERC is available to manufacturers who are unable to run at full capacity because of supply chain disruptions.
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Credit Amount
The Employee Retention Credit (ERC) is a tax credit that businesses can claim for qualified wages paid to employees during the COVID-19 pandemic.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.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.For the first 3 quarters in 2021, an employer could receive up to $7,000 per employee each quarter. That’s up $21,000 per worker for the whole year.
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Claiming 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.
Options for Claiming the ERC in Advance
There are three options available to businesses for claiming ERC:
- Claim your credit in Advance: Businesses can take advantage of the credit by reducing deposits made quarterly for employment tax.Businesses must submit Form 7200 to the IRS, Advance Payments of Employer Taxes and Credits.
- Businesses can reduce their quarterly deposits for employment tax by the amount they anticipate receiving.Businesses must submit Form 941 to the IRS, indicating the amount they want to reduce their deposit by.
- Request a refund: Businesses that have already paid their employment taxes can request a refund of the credit by filing Form 941-X with the IRS.
Calculating the Amount of the Credit and Avoiding Double-dipping with Other Relief Programs
Multiplying employee wages with the applicable credit rate will give you the ERC.The credit rates for 2020 are 50% and 70% in the first 3 quarters of 2021.
Businesses must be cautious to not double dip with other relief programmes.For example, businesses can’t claim the ERC if they are also claiming the Paid Family Leave Credit or Work Opportunity Tax Credit.
Tips and Resources for Recordkeeping and Documentation
Businesses should keep detailed records of all qualified wages paid to employees during the ERC period.This will assist businesses in accurately calculating the amount they are entitled for as well as supporting their claim if the IRS audits it. When Will Employee Retention Credit Be Paid
Here are some helpful tips on documenting your records and documents:
- All payroll records should be kept, including W-2s and Forms 941s.
- Keep track of all the hours worked by your employees including holidays, sick days, and vacations.
- 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.
IRS provides various resources, such as fact sheets and videos, to help businesses claim the ERC.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.Below are some business examples that may be eligible for Employee Retention Credit.
- Restaurants forced to close due to government orders
- Retail shops that have experienced a substantial decline in sales
- Due to disruptions in the supply chain, manufacturers are not able to operate at their full capacity
- Donations of nonprofit organizations declined
- Hotels and hospitality businesses
- Travel and Tourism Businesses
- Entertainment and event businesses
- Personal care businesses
- Gyms and fitness studios
- Salons, spas
- Retail stores that sell non-essential products
- Businesses that have been required to operate in a reduced capacity
- Businesses that are forced to implement new safety protocols
- Costs increased for businesses due to 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. When Will Employee Retention Credit Be Paid
Here are some examples that show how businesses have used ERCs:
- 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.
- 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.
Contact a tax expert if you’re a business owner who is unsure if you qualify for the ERC.They can help determine your eligibility as well as claim the credit for you if you’re eligible.
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Avoiding Scams
Risks of ERC Scams and Aggressive Marketing
Unfortunately, there are scammers who are trying to take advantage of businesses that are eligible for the Employee Retention Credit (ERC).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 warnings and red flags for identifying potential ERC fraudsters:
- They guarantee to refund your money without looking into your records.
- You will be charged high fees upfront, or a percentage of your refund.
- The salespeople are aggressive and use high-pressure tactics. When Will Employee Retention Credit Be Paid
- 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
If you’re contacted by an ERC con artist, then you should report their activity to 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.Never give out personal information to someone who contacts you without your permission.If you’re not sure if a company is legit or not, you should check reviews online. You can also contact 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 discussed eligibility requirements, claiming processes, and possible scams related the ERC.
We’ve also included some resources and advice on recordkeeping.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
When Will Employee Retention Credit Be Paid
What is the 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 is eligible for ERC funding?
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?
Included in qualifying wages are wages, salaries, and tips paid to employees.
The employer’s health insurance premiums are also included in the calculation of wages.
How can I claim my ERC?
Businesses can claim ERC by submitting an amended Form 941 to the IRS.The amended Form 941X must be filed no later than three years after the original Form 941.
Do I have to repay my ERC?
The ERC is not a tax credit that needs to be repaid.
Can I claim ERC even if I have 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 individuals claim ERC benefits?
Self-employed individuals can apply for the ERC.
Schedule C forms can be claimed by individuals who are self-employed.
Can nonprofit organizations claim ERC?
Yes, organizations that are not for profit can qualify for the ERC.
Nonprofits can claim ERC on Form 990 T.
Can companies that have a foreign subsidiary claim ERC benefits?Can companies who have a foreign branch claim ERC?
Yes, employers can claim ERC when they pay wages to foreign employees.
It is important to note that there are additional requirements for claiming the tax credit.
Are there mistakes that companies make in claiming ERCs?
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
- All wages are not included
- Failing to amend Forms 941-X within the specified timeframe.