The COVID-19 virus has wreaked havoc across all businesses, forcing some to shut their doors or layoff employees.There is one lifeline that can help businesses remain afloat – the Employee Retention credit (ERC).
The ERC can be claimed by businesses on the wages they paid employees who qualified during 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.To learn more about the ERC and how to claim it, visit the IRS website, speak with a tax advisor, or read 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.
-a}
The Employee Retention CreditWhen Will I Get The Employee Retention Credit
The Employee Retention Credit (ERC) is a refundable tax credit that businesses can claim for qualified wages paid to employees during the COVID-19 pandemic.It was created as part of the Coronavirus Aid, Relief, and Economic Security Act, in March 2020, to help companies keep their employees, despite being unable operate normally.
Businesses of all sizes can apply for the ERC, even those that are tax-exempt.To qualify, the business must have seen a significant reduction in gross sales or be suspended fully or partly due to an order from the government related to COVID-19.
The ERC is able to provide significant financial support for businesses affected by the pandemic.It can help businesses to retain employees, pay for payroll, and invest in the future.
Why was 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 established to assist businesses in keeping their employees employed so they can quickly reopen, resume normal operations and regain control of the situation once the pandemic has subsided.
Benefits of the ERC
The ERC is a great way to boost the finances of businesses affected by pandemics.It can assist in keeping employees on board, which will help the business recover quickly.
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. When Will I Get The Employee Retention Credit
Impact of ERCs on the Economy and Businesses
The ERC was able to keep millions of Americans working during the COVID-19 pandemic.It has also helped businesses to stay afloat and weather 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.It has also contributed towards the economic recovery through a boost in consumer spending and investment.
> > Click Here to Find Out if You Are Eligible for ERC< <
Eligibility
The only difference between ERC 2020 requirements and those of 2021 is the test for gross receipts.In 2020, an enterprise must have suffered a significant drop in gross receipts that is at least 50 percent less than the same period in the previous calendar year.In 2021 an enterprise must have seen a decline in gross revenue of atleast 20% in comparison to the same period in the previous year.
Business Qualifications
The ERC is available to businesses in two different ways.
- ERC eligibility is based on whether the business has been suspended completely or in part due to COVID-19.Businesses that are required to close down, operate with a reduced capacity or adhere to certain restrictions can be eligible for the ERC.
- 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 gross receipts are defined as a drop of at least 50% or 20% from the same quarter last year.
Examples and Scenarios
Here are some examples and scenarios to illustrate each eligibility criterion:
An order of the government may suspend all or part of a program.
- ERC will cover a restaurant which is forced to close down by government orders.
- 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 can be awarded to a retail store that has experienced a 50% decrease in sales because of COVID-19.
- ERCs are available for manufacturers that cannot operate at their full capacity as a result of disruptions in supply chains.
> > Click Here to Find Out if You Are Eligible for ERC< <
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 of the credit varies depending on the quarter and the number of employees a business has.
For 2020, the credit is equal to 50% of qualified wages paid to employees up to a maximum of $10,000 per employee.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.
> > Click Here to Find Out if You Are Eligible for ERC< <
Claim your 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 filed for any quarter in which the business was eligible for the credit.
Claim the ERC in Advance
Businesses have three options for claiming the ERC:
- Claim the credit in advance: Businesses can claim the credit in advance by reducing their quarterly employment tax deposits.To do this, businesses must file Form 7200, Advance Payment of Employer Credits and Taxes, with the IRS.
- Businesses can also reduce the quarterly employment tax deposit by the amount that they expect to get.To do this, businesses must file Form 941 with the IRS and indicate the amount of the credit they are reducing their deposits 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 Credit Amount and Avoiding Double Dipping with Other Relief Programs
Multiplying qualified wages by the credit rate applicable, the ERC can be calculated.Credit rate is set at 50% for 2020 and 70% for the three first quarters of 2021.
Businesses should avoid double-dipping on other relief programs.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 Documentation
Businesses must keep detailed records on all wages paid during the ERC.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 I Get The Employee Retention Credit
Here are some tips on recordkeeping and documentation.
- 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 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 contact IRS for help by calling 1-800-829-1040.
> > Click Here to Find Out if You Are Eligible for ERC< <
Examples of Eligible Businesses
The Employee Retention Credit (ERC) is available to businesses that have been impacted by the COVID-19 pandemic.Here are some businesses that could be eligible for Employee Retention Credit.
- Restaurants forced to shut down due to government order
- Retail stores who experienced a significant drop in sales
- Manufacturing companies are unable to reach full capacity because of supply chain disruptions
- Donations for nonprofit organizations are down
- Hotels and other hospitality businesses
- Travel and tourism business
- Entertainment and event business
- Personal care businesses
- Gyms and fitness studios
- Salons, spas
- Retail stores selling non-essential goods
- Businesses that had to operate on a lower capacity
- Businesses forced to adopt new safety protocols and measures
- Businesses who experienced higher costs due to COVID-19
In addition to these examples, any business that was fully or partially suspended by a government order or that experienced a significant decline in gross receipts due to COVID-19 may be eligible for the ERC. When Will I Get The Employee Retention Credit
Here are some specific examples of how businesses have used 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.
- 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 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 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.They can determine your qualification and help you claim the credit.
> > Click Here to Find Out if You Are Eligible for ERC< <
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
There are warning signs that could indicate an ERC scammer.
- They promise to get you a refund without reviewing your records.
- They charge you high upfront fees or a certain percentage of your refund.
- Sales tactics are high-pressure. When Will I Get The Employee Retention Credit
- They are not affiliated to a reputable organization of tax professionals.
- They ask for your personal or financial information upfront.
Reporting Suspicious Activities and Protecting Personal Information
If you are contacted by an ERC scammer, you should report the activity to the IRS.This can be done by calling 1-800-829-1040, or visiting the IRS’s website.
It is important to safeguard your personal and financial data.You should not provide your personal information to anyone contacting you uninvited.You can find reviews of a company online, or you can contact the IRS if you’re unsure.
> > Click Here to Find Out if You Are Eligible for ERC< <
Conclusion
In this article, we have discussed the Employee Retention Credit (ERC), a tax relief program that helps eligible employers keep their employees on payroll during the COVID-19 pandemic.We have outlined the ERC’s eligibility requirements, its claim process, as well as the possible scams.
We have also provided tips and resources on recordkeeping and documentation.The ERC can be a valuable benefit for employers, helping them reduce their employment taxes, improve their cashflow, and support their employees.We encourage eligible employers to claim this credit and, if necessary, seek professional help.
> > Click Here to Find Out if You Are Eligible for ERC< <
Frequently Asked Questions about Employee Retention Credits
When Will I Get The Employee Retention Credit
What is the ERC?
The COVID-19 pandemic has impacted businesses. A refundable tax credit is available.
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 are qualified wages?
Qualified wages include wages, salaries, tips, and bonuses paid to employees.
Employer-paid health insurance premiums also qualify as wages.
How do I claim ERC?
Businesses can claim the ERC by filing an amended Form 941 or Form 941-X with the IRS.The amended Form 941X must be filed no later than three years after the original Form 941.
Do I have to pay back 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?
Yes, even if you have received a Loan Protection Program (PPP) for your business.
Businesses can’t claim ERC on wages they used for PPP loans.
Can self-employed individuals claim ERC?
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, nonprofit organizations are eligible for the ERC.
Nonprofits may claim ERCs on their Form 990T.
Can companies that own a foreign affiliate claim ERCs?
You can claim ERC on wages paid to foreign subsidiaries.
That said, there are some additional requirements that must be met before they can claim it.
Are there common mistakes that businesses make when claiming ERC to watch out for?
There are a few common mistakes that businesses should avoid when claiming an ERC. These include but are not restricted to
- Incorrect credit calculation
- Failure to include all qualified wages
- Failing to amend Forms 941-X within the specified timeframe.