199A Wages And Employee Retention Credit

COVID-19, the pandemic that has swept across the globe in recent years, has brought unprecedented challenges and hardships to businesses and organisations around. Many employers have faced reduced revenues, increased expenses, and disrupted operations due to lockdowns, social distancing, and health and safety measures.

In order to help employers retain employees and offer them health benefits in this tough time, the U.S. Government has introduced the Employee retention credit (ERC), which is a tax credit refundable that can be used by eligible employers to offset some payroll costs.

The ERC, which was originally enacted in 2020 by the CARES Act, was extended and modified later by subsequent legislation in both 2021 & 2023. This article will explain what the ERC is, how it works, and how to claim it for different time periods and eligibility criteria.

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.

What is the Employee Retention Credit? 199A Wages And Employee Retention Credit

Employee Retention Credit is a tax credit that can be refunded to businesses and tax-exempt organizations who had employees affected by COVID-19. The ERC is a refundable tax credit that was created by 2020’s CARES Act and has been extended and changed by subsequent legislations of 2021 and 2023. The ERC was created to encourage employers in crisis to keep workers on their payrolls and provide them health insurance.

Main Features and Benefits

Credit is a fixed percentage of qualifying wages and health care costs paid by employers to employees.
The percentage and the maximum credit vary depending on how long the credit can be claimed. For 2020, the percent is 50%, and the limit is $5,000 for each employee per year. For 2021, the percentage is 70%, and the limit is $7,000 per employee per quarter. For 2023, the percentage is 70% for the first two quarters and 40% for the last two quarters, and the limit is $10,000 per employee per quarter. 199A Wages And Employee Retention Credit
The credit will be fully refundable if its amount exceeds that of the employer’s payroll taxes.
The credit can be claimed by employers who experienced a significant decline in gross receipts or a full or partial suspension of operations due to a qualifying government order related to COVID-19. In addition, employers who qualify as recovery-startup businesses for 2023 can also claim the credits.
Credits can be claimed either by amending your employment tax return (Form 941)-X or by reducing your employment tax deposit in anticipation of receiving the credit. The credit can be requested in advance by employers using Form 7200.

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Eligibility Criteria

In order to qualify for Employee Recruitment Credit (ERC), a company must meet the following criteria:

A government order suspended the employer’s organization or business in full or part due to COVID-19 for a calendar quarter of 2020 or 2021
The employer’s gross receipts for a calendar quarter in 2020 or 2021 were less than 50% (for 2020) or 80% (for 2021) of its gross receipts for the same quarter in 2019

In addition, there is a special rule for recovery startup businesses that began operations after February 15, 2020 and have average annual gross receipts of no more than $1 million. These businesses may qualify for ERC regardless of revenue or business suspension.

Business Suspension

A government order will either fully or partially suspend an organization or business if:

The order limits commerce, travel, or group meetings due to COVID-19
The order impacts the operations of a business or organization
The order applies to any calendar quarter in 2020 or 2021

Some examples of orders from the government that could cause a business to be suspended are:

Stay-at-home orders restricting non-essential business operations
Certain businesses have curfews that limit their hours of operations
Limits to the number of clients or customers that a company can serve
Travel restrictions or travel bans that limit the ability of businesses to transport products or services

An employer should consider the following factors to determine if an order from a government has suspended a business in its entirety or only partially.

The nature and scope of the order and how it affects the operations of the business
The length, frequency, and timing of the order in relation to the quarters of the year.
The magnitude and impact of the order upon the revenue and expenses of a business

Revenue Decline

A business or organization is considered to have experienced a significant decline in gross receipts if:

The gross receipts in any calendar quarter of 2020 will be less than 50% the gross receipts in the same quarter of 2019.
The gross receipts for any calendar quarter in 2021 were less than 80% of its gross receipts for the same quarter in 2019

Gross receipts are defined as the total amount received or accrued by a business or organization from all sources during its annual accounting period without any deductions. Gross receipts consist of:

Sales of goods and services
Interest, dividends, rents, royalties, and annuities
Donations, contributions, grants and gifts 199A Wages And Employee Retention Credit
Membership dues
Gross profit from business or trade

To compare gross receipts between different quarters of the year, employers must use:

The same method of accounting (cash or accrual) that it used to file its federal income tax return for 2019
Use the same calendar quarters as it did for its federal employment tax return (Form 941 ) for 2019 and 2021/2022
The same sources of revenue that they reported on their federal income tax return in 2019

Recovery Startup Business

A startup that is in recovery can be defined as

Began carrying on any trade or business after February 15, 2020,
Average annual gross receipts not exceeding $1 million during the three-year period ending on the tax year immediately preceding the calendar quarterly for which the credit will be determined

If a business is in recovery, it can still qualify for ERC even if the business has been suspended or its revenue has declined. There are certain limitations and rules that apply to recovery startups businesses.

The maximum amount of credit per quarter is $50,000
The credit will only be available to employees who have paid wages in the third quarter and fourth of 2021
The maximum credit available for startup businesses is $250 million.

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Credit Amounts Calculation

For different lengths of time, different types of employers and different amounts of ERC, the ERC has different rules. The ERC’s main influences are:

How much an employer’s company was affected by the pandemic.
What number of employees did the employer have in 2019 and 2020/2021?
What the employer paid each employee for their health insurance and during the pandemic

To claim the ERC, the employer must fill out and submit a form to the IRS. The forms must include the total amount paid by the employer to employees, their health insurance coverage and the reasons why they are eligible for the ERC. The IRS will examine the forms to determine if the employer is eligible and then pay him the money. The employer can then use the money for paying their employees, their health insurance and/or to receive refunds or credits on their payroll tax.

The ERC won’t be around forever. The ERC started in March 2020 and ends in September 2022. Employers must claim their ERC before they expire or become unavailable. The employer has to spend the money efficiently and not waste. 199A Wages And Employee Retention Credit

Below is more detailed information on the credit amount and calculation of ERC.

Time Period

The ERC was implemented, amended, or terminated by various laws in 2020. The credit amount varies depending on the time period for which it is claimed. The table below summarizes key differences and features of the ERCs for each time period:

Time Period	Law	Eligible Employers	Credit Rate	Qualified Wages
2020	CARES Act	Employers with business suspension or revenue decline of more than 50%	50% of qualified wages up to $10,000 per employee per year	Wages paid from March 13 to December 31, 2020
Q1-Q3 2021	CAA and ARPA	Employers with business suspension or revenue decline of more than 20%	70% of qualified wages up to $10,000 per employee per quarter	Wages paid from January 1 to September 30, 2021
Q3-Q4 2021 (Recovery Startup Business)	ARPA	Recovery startup businesses with average annual gross receipts of no more than $1 million,	70% of qualified wages up to $10,000 per employee per quarter (subject to a $50,000 cap per quarter),	Wages paid from July 1 to December 31, 2021,
Q4 2021 – Q3 2022 (Severely Financially Distressed Employer)	ARPA and IIJA	Employers with a revenue decline of more than 90%	70% of qualified wages up to $10,000 per employee per quarter	Wages paid from October 1, 2021, to September 30, 2022

Number of Employees

The number of eligible employees will affect the calculation and definition of health insurance and qualified wages. According to the time frame and number of full-time equivalents (FTEs), an employer can be classified as a small employer or large employer. The following table summarizes rules and thresholds to determine employer size.

Time Period	Small Employer Threshold	Large Employer Threshold
2020	Less than or equal to 100 FTEs in 2019	More than 100 FTEs in 2019
Q1-Q2 2021	Less than or equal to 500 FTEs in 2019	More than 500 FTEs in 2019
Q3-Q4 2021	Less than or equal to 500 FTEs in any calendar quarter in either calendar year beginning after December 31, 2019, and ending before July 1, 2021. If an employer did not have in either calendar year beginning after December 31, 2019, and ending before July 1, 2021, the employer is treated as a small eligible employer if it had less than or equal to 500 FTEs in any calendar quarter beginning after June 30, 2021. For recovery startup businesses, the employer size is irrelevant. For severely financially distressed employers, the employer size is irrelevant if the employer had a revenue decline of more than 90%. Otherwise, the same rules as Q1-Q2 2021 apply.	More than 500 FTEs in any calendar quarter in either calendar year beginning after December 31, 2019, and ending before July 1, 2021. If an employer did not exist in either calendar year beginning after December 31, 2019, and ending before July 1, 2021, the employer is treated as a large eligible employer if it had more than 500 FTEs in any calendar quarter beginning after June 30, 2021.

To count FTEs for a given year or quarter, an employer must use the following steps:

Count the number of employees who worked at least 30 hours per week (or at least 130 hours per month) for each month in the year or quarter
Add up the total hours worked by all other employees (who are not counted as FTEs) for each month in the year or quarter
Divide the total hours by120and round down to the nearest whole number
Add the number of FTEs from Step One and Step Three for each month in the year or quarter
Calculate the average number of FTEs by adding up the monthly totals and dividing by 12 (for a year) or 3 (for a quarter)

Qualified Wages and Health Insurance Costs

Qualified wages refer to wages paid during a period when the business is suspended or revenues are declining. The list of qualified wages includes tips, bonuses, commissions, and severance payments, as well as sick leave, family leave, severance, and other compensation. Qualified salaries also include the costs of providing health coverage to eligible workers, including premiums, copays, deductibles, and coinsurance.

The calculation and definition of health insurance and qualified wages are dependent on the size of the employer and the time period. The table below summarizes rules and examples in different scenarios. 199A Wages And Employee Retention Credit

Employer Size	Time Period	Qualified Wages and Health Insurance Costs	Example
Small	2020	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not	An employer with 80 FTEs in 2019 paid $8,000 in wages and $2,000 in health insurance costs to an employee in 2020. The employer had a revenue decline of more than 50% in Q2 2020. The qualified wages and health insurance costs for Q2 2020 are $10,000.
Small	Q1-Q3 2021	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not	An employer with 400 FTEs in 2019 paid $12,000 in wages and $3,000 in health insurance costs to an employee in Q1 2021. The employer had a revenue decline of more than 20% in Q1 2021. The qualified wages and health insurance costs for Q1 2021 are $15,000.
Small	Q3-Q4 2021 (Recovery Startup Business)	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not (subject to a $50,000 cap per quarter)	A recovery startup business that began operations in March 2020 paid $9,000 in wages and $1,000 in health insurance costs to an employee in Q3 2021. The business had average annual gross receipts of $800,000. The qualified wages and health insurance costs for Q3 2021 are $10,000.
Small	Q4 2021 – Q3 2022 (Severely Financially Distressed Employer)	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not	An employer with 600 FTEs in Q2 2019 paid $11,000 in wages and $4,000 in health insurance costs to an employee in Q4 2021. The employer had a revenue decline of more than 90% in Q4 2021. The qualified wages and health insurance costs for Q4 2021 are $15,000.
Large	2020	Wages and health insurance costs paid to an employee for the time that the employee did not work (up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship)	An employer with 120 FTEs in 2019 paid $10,000 in wages and $2,000 in health insurance costs to an employee who worked full-time (40 hours per week) in 2020. The employer had a business suspension due to a government order in April 2020. The employee did not work for two weeks in April 2020. The qualified wages and health insurance costs for April 2020 are $2,308 ($10,000 x2/52+$2,000 x2/52).
Large	Q1-Q3 2021	Wages and health insurance costs paid to an employee for the time that the employee did not work (up to the amount that the employee would have been paid for working an equivalent duration during the 90 days immediately preceding the period of economic hardship)	An employer with 550 FTEs in 2019 paid $15,000 in wages and $5,000 in health insurance costs to an employee who worked full-time (40 hours per week) in Q1 2021. The employer had a revenue decline of more than 20% in Q1 2021. The employee did not work for three weeks in Q1 2021. The qualified wages and health insurance costs for Q1 2021 are $5,769 ($15,000 x3/13+$5,000 x3/13).
Large	Q3-Q4 2021 (Severely Financially Distressed Employer)	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not (only if the employer had a revenue decline of more than 90%. Otherwise, the same rules as Q1-Q32021 apply.)	An employer with 700 FTEs in Q4 2019 paid $12,000 in wages and $6,000 in health insurance costs to an employee who worked full-time (40 hours per week) in Q4 2021. The employer had a revenue decline of more than 90% in Q4 2021. The qualified wages and health insurance costs

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Claim and Report the Credit

To claim the Employee Retention Credit (ERC), an employer must file a federal employment tax return (Form 941) or an adjusted employment tax return (Form 941-X) with the Internal Revenue Service (IRS). The employer will need to declare the qualified wages paid and the health insurance expenses paid for eligible employees. They must also report the credit claimed.

Form 941

Form 941 allows employers to declare their quarterly federal taxes, including income taxes, Medicare and Social Security tax. Form 941 allows the employer also to claim ERCs in current or future quarters. Form 941 can be used by the employer to:

ERC – Reduce the amount the employer is required to pay in taxes.
You can ask for advance payment if your ERC exceeds the amount of taxes you have to pay. 199A Wages And Employee Retention Credit
Carry forward any excess credits to future quarters

To fill out Form 941 correctly and avoid common errors, the employer should:

Use the most recent version of Form 941, which reflects any changes or updates to the ERC laws.
Use the IRS worksheets and instructions to calculate and report the ERC
Use Line 1c to report on the health insurance and wages that eligible employees have received.
Use Line 13d when reporting the credit for each quarter.
Line 13f is used to report any advance payment of credit received by the IRS
Use Line 24 to request an advance payment of the credit if needed
Use Line 25 to report any excess credit that can be carried forward to subsequent quarters
Sign and date Form 941, and include any supporting documents and schedules.

Tips and resources on how to complete Form 941 include:

Use online services or electronic filing to submit Form 941 more quickly and securely
Visit the IRS website to get the latest updates, FAQs, and guidance regarding Form 941 and ERC.
Contact the IRS or a tax professional for assistance or clarification if needed

Form 941-X

Form 941-X allows you to correct mistakes or make adjustments in Form 941 that has already been filed. The Form 941X allows the employer retroactively to claim ERC for previous quarters. The employer can use the Form 941 X to: 199A Wages And Employee Retention Credit

Claim the ERC to get a refund of taxes that you have overpaid.
Report additional qualified wages and health insurance costs paid to eligible employees that were not reported on Form 941
Correct any mistakes or omissions made on Form 941 that affect the amount of credit claimed

Employers should avoid these common mistakes when filling out Form 941 X and ensure that they are filled out correctly.

Use the latest Form 941-X which reflects all the updates and changes made to the ERC by new laws.
For calculating and reporting your ERC, follow the IRS’s instructions and worksheets.
Use Part 2 to indicate which lines of Form 941 are being corrected or adjusted
Use Part 3 to explain the reason for a correction or adjustment on Form 941
Line 24 is used to report additional wages and health insurance premiums paid to eligible employees.
Use Line 25 to report any additional amount of credit claimed for each quarter
Use Line 26 when reporting any refund or credit that you have requested as a result of claiming your ERC
Attach any supporting documents and schedules to Form 941-X.

The following are some resources and tips for filling in Form 941X.

You must file a separate 941X form for each quarter you are correcting or adjusting. 199A Wages And Employee Retention Credit
File Form 941-X as soon as possible after discovering an error or making an 0adjustment on Form 941
Updates, FAQs, and guidance about Form 941X and ERC can be found on the IRS website.
You can also contact a tax expert or the IRS for clarification or additional assistance.

Deadline and Statute of Limitations

The deadline for filing Form 941 is generally the last day of the month following the end of each quarter. For example, Q1 2020 (January-March) Form 941 will be due on April 30, 2021. If an employer has made all the required deposits for the quarter in a timely manner, they can file Forms 941 on the 10th of the second month. The end of the quarter. For Q1 2021 (January-March), form 941 must be submitted by May 10, 2020, 199A Wages And Employee Retention Credit

Form 941X must be filed within three years of the original filing date or two from the payment date, whichever comes later. For example, for Q1 2020 (January-March), Form 941 was due by April 30, 2020. If an employee filed Form 941 in April 2020 and paid their tax in April 2020, the deadline to file the Form 941 X is April 30 2023. If an employer filed form 941 on April 30 2020 and paid the tax by June 15, 2020, then the deadline to file Form 941-X will be June 15, 2022.

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Conclusion

Employee Retention credit (ERC), a valuable benefit under tax law, can help employers who have been affected by COVID-19 keep their staff on payroll and minimize the impact of pandemic.

The ERC is a refundable tax credit. It varies based on time, number of employees, and amount of wages and health insurance paid to eligible employees. The ERC may be claimed through IRS Forms 941 and 941X, which require the employer to report the qualified wages paid and the health insurance expenses incurred by each employee.

Do not miss out on this opportunity if you’re an employer that meets the ERC eligibility criteria. The ERC has a time limit and deadline for claiming. Use the resources and tips provided in this article to ensure that you fill out your forms correctly and avoid common mistakes. You can also contact the IRS or a tax professional for assistance or clarification if needed.

The ERC can make a big difference for your business or organization and your employees. It can help your business or organization retain workers, maintain cash flow and recover from a pandemic. We hope this article has helped you understand more about the ERC and how to claim it. Thank you for reading, and stay safe.

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199A Wages And Employee Retention Credit

What is the ERC?

Employee Retention Credit (ERC) is a tax incentive for employers that retained their employees on their payrolls during the COVID-19 Pandemic.

It was created in March of 2020 by the CARES Act and later extended and amended by the CAA Act of December 2020 (Consolidated Appropriations Act of 2021).

Does everyone qualify for the ERC program?

ERC isn’t available to everyone. The ERC is only available to employers that have paid wages to employees between March 13, 2020, and December 31, 2021.

More details are available above. But here are some of the highlights.

A government-issued order temporarily or permanently suspended the organization or business due to COVID-19.
The gross receipts of a calendar quarter for 2020 or 2021 were less than a percent of the gross receipts from a similar quarter in 2019.
They are a recovery startup business that began operations after February 15, 2020, and has average annual gross receipts of no more than $1 million.

What is the ERC worth?

The amount of ERC an organization or business receives depends on several factors.

These factors include time, the number of employees and the amount of wages that qualify. They also include health insurance costs for eligible employees. To learn more about how ERCs are calculated, please read the article.

How to claim your ERC?

For an employer to claim the ERC, they must file either a federal reform of employment tax or an amended employment tax return (941-X).

Employers must declare the wages and costs of health insurance paid to employees who qualify and the credit claimed each quarter.

When is the deadline to file the ERC Forms

The deadlines for filing Forms 941 and 941-X are different.

The last day to submit Form 941 for each quarter is the last calendar month. In contrast, the deadline to submit Form 941 X is generally set at three years since the date of the original 941. The deadline can be two years after the date the tax was paid. However, the latter date is preferred.