Administrative Adjustment Request For Employee Retention Credit

Many businesses and organizations have faced unprecedented hardships and challenges as a result of the COVID-19 pandemic. Many employers have faced reduced revenues, increased expenses, and disrupted operations due to lockdowns, social distancing, and health and safety measures.

To help employers retain their employees and provide them with health benefits during this difficult time, the U.S. government has introduced the Employee Retention Credit (ERC), a refundable tax credit that can offset some of the payroll costs for eligible employers.

The ERC has been in place since 2020 when the CARES Act was passed. Later, in 2021 and again in 2023, it was modified and extended by new legislation. The ERC will be explained in this article, along with how it works and the different eligibility criteria and time periods for which it can be claimed.

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? Administrative Adjustment Request For Employee Retention Credit

Employee Retention Credit (ERC), a refundable tax credits, is available for tax-exempt businesses or organizations with employees that were affected in any way by the COVID-19 Pandemic. 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 encourages employers to maintain their workers and to provide health benefits to them during the crisis.

Main Features and Advantages

The credit is equal to a percentage of qualified wages and health insurance costs paid to eligible employees, up to a certain limit per employee per quarter.
The credit limit and percentage are dependent on the period of time for which you claim the credit. 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, there is a 70% percentage for the first 2 quarters followed by 40% for the second two quarters. There is a $10,000 limit per employee. Administrative Adjustment Request For Employee Retention Credit
The credit amount is fully refundable, meaning if the credit exceeds your employer’s tax liability on payroll, you will receive the excess as a reimbursement.
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. Alternatively, for 2023 only, employers who are considered recovery startup businesses can also claim the credit.
The credit may be claimed by filing a modified employment tax return (941-X), or by reducing the employment tax deposits to prepare for the credit. Employers can also request an advance payment of the credit by filing Form 7200.

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Eligibility Criteria

To qualify as an employer for the Employee retention Credit (ERC), you must meet at least one of the two criteria below:

A government order has suspended or halted the business or organization of an employer due to COVID-19 in a calendar year 2020 or 2021.
Employer’s gross receipts in a calendar quarter of 2020 or 2021 was less than 50% or 80% of the gross receipts in the same quarter in 2019.

The recovery startup rule also applies to businesses that began operating after February 14, 2020 and had average annual gross receipts not exceeding $1 million. These businesses qualify for ERC despite business suspensions or revenue decreases.

Business Suspension

A business or organization is considered fully or partially suspended by a government order if:

The order restricts the commerce, travel and group meetings that are prohibited by COVID-19
The order has a direct impact on the operations of an organization or business
The order will apply to any calendar month in 2020 or even 2021

Examples of government orders which can lead to a suspension of business include:

Stay-at-home orders that restrict non-essential businesses from operating
Curfews that limit the hours of operation for certain businesses
Capacity limits that reduce the number of customers or clients that can be served by a business
Travel restrictions or travel bans that limit the ability of businesses to transport products or services

To determine if the business was partially or fully suspended by an official order, employers must consider:

How the nature and scope and the order affect the operation of the business
The duration and frequency of the order and how it coincides with the calendar quarters
The extent and severity of the impact of the order on the revenues and expenses of the business

Revenue Decline

It is considered that a business or organization has experienced a significant drop in gross receipts when:

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

Gross receipts can be defined as all the money received by an organization or business from any source during their annual accounting period, without deductions. Gross receipts consist of:

Sales of goods and services
Interest, dividends, rents, royalties, and annuities
Contributions, gifts, grants, and donations Administrative Adjustment Request For Employee Retention Credit
Membership dues
Gross income from trades or businesses

To calculate and compare gross revenue for different quarters using the following:

It should use the same method of accounting, either cash or accrual, that it used for its federal income tax returns for 2019.
For 2019 and 2020/2021, the same quarters of the calendar year that were used for filing federal employment tax returns on Form 941.
The same sources of revenue that they reported on their federal income tax return in 2019

Recovery Startup Business

A recovery startup is a business:

Begun carrying on any business after February 15th, 2020
Has average annual gross receipts of no more than $1 million for the three-tax-year period ending with the tax year that precedes the calendar quarter for which the credit is determined

A recovery startup business can qualify for the ERC regardless of whether it meets the criteria of business suspension or revenue decline. Recovery startup businesses are subject to certain restrictions and special rules.

Maximum credit per quarter: $50,000
Only wages paid during the third and fourth quarters in 2021 are eligible for this credit
All recovery startup businesses are subject to an aggregate cap of $250,000,000.

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Credit Amount and Calculation

There are different ERC rules and amounts for different employers and periods of time. The ERC is primarily affected by:

How much an employer’s company was affected by the pandemic.
Employer’s number of employees in 2019 or 2021, and whether the employee worked or not.
How much each employee received from their employer and how they were covered by health insurance in the pandemic

Employers must complete and send IRS forms to claim ERC. The form must show the amount the employer paid for their employees’ health insurance, and how they qualified for the ERC. The IRS will then check the forms before giving the money to employers. The employer can use the money to pay their employees and their health insurance or to get refunds or credits for their payroll taxes.

The ERC is not available forever. It began in March 2019 and will finish in September 2020. The employer has to claim the ERC before it expires or becomes unavailable. The employer should also make sure to not waste the money. Administrative Adjustment Request For Employee Retention Credit

Here is more information about the ERC and its calculation.

Time Period

In 2020, 2021, & 2022, different laws were passed to introduce, amend, and terminate the ERC. The amount of credit depends on the time frame for which it’s claimed. The table below summarises key features and differences for the ERC in each time frame:

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

The Number of Employees

The number employed affects how wages are calculated and defined, as well as the health insurance premiums for eligible employees. Employers are classified as small or large employers based on their number of full-time workers (FTEs), and the period in which they were employed. This table summarizes thresholds and rules to determine the size of an employer for each period.

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)

Earnings and Costs of Health Insurance

Qualified wage is the number of wages that are paid to employees who qualify during a time when a business has been suspended or revenue has decreased. Qualified wages can include severance payment, bonuses, severance tips, sick pay, family pay and other forms compensation. Qualified wage also includes the cost of health insurance for eligible employees. This may include premiums, deductibles, co-pays, or co-insurance.

The calculation of qualified wages, health insurance costs and employer size depends on the time period. The following table provides a summary of the rules for different scenarios. Administrative Adjustment Request For 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 Employees Retention Credit, an employer must file with the Internal Revenue Service a federal Employment Tax Return (Form941) or a adjusted Employment Tax return (Form941X). The employer must declare the wages and health insurance premiums paid to eligible employees, as well as the credit amount claimed each quarter.

Form 941

Form 941 is used to report the employer’s quarterly federal tax liability, including income tax, social security tax, and Medicare tax. The employer can also claim the ERC in Form 941 for future or current quarters. Form 941 is used by employers to:

ERCs can be used to reduce the amount of tax that an employer must pay to the IRS.
The employer can request an advanced payment of the ERC credit if it exceeds taxes that they have to deposit. Administrative Adjustment Request For 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 latest version 941 which reflects updates and changes in the ERC.
Follow the instructions and worksheets provided by the IRS for calculating and reporting the ERC
Use Line 11c for the amount of qualified wages and health benefits paid to eligible employees
Use Line 13d when reporting the credit for each quarter.
Use Line 13f to report any advance payments of the credit received from the IRS
Use Line 24 to request a credit advance if necessary
Use Line 25 to report any excess credit that can be carried forward to subsequent quarters
Sign and date Form 941, attaching any supporting documents, schedules, or schedules.

You can find some helpful tips on how to fill out Form 941 here:

Use online services or electronic filing to submit Form 941 more quickly and securely
Check the IRS website for updates, FAQs, and guidance on Form 941 and the ERC
Need clarification? Contact an IRS agent or tax professional.

Form 941-X

The Form 941X can be used to make corrections or adjustments on an earlier Form 941. Form 941-X also allows the employer to claim the ERC retroactively for past quarters. The employer may use Form 941 to: Administrative Adjustment Request For Employee Retention Credit

Claim a refund or credit for overpaid taxes due to claiming the ERC
Report any additional wages or health insurance costs that are paid to employees who are eligible but not reported on Form 951.
You can correct any errors or omissions that may have affected the credit claimed amount on Form 941.

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

Use the latest form 941X that reflects changes to laws that are applicable to the ERC.
For calculating and reporting your ERC, follow the IRS’s instructions and worksheets.
Use Part 2 for indicating which lines of the Form 941 need to be corrected or adjusted
Use Part 3 to explain your corrections or adjustments on Form 941.
Line 24 should be used to record any additional health insurance and wages paid to employees who qualify.
Line 25 should be used to declare any additional amount claimed as a credit each quarter
Use Line 26 to report any refund or credit requested due to claiming the ERC
Sign and date the Form 941 X and add any supporting documents or schedules.

Here are some tips and resources to help you fill out Form 941X:

You must file a separate 941X form for each quarter you are correcting or adjusting. Administrative Adjustment Request For Employee Retention Credit
If you discover an error on Form 941 or make an adjustment, file Form 941X as soon as you can.
The IRS website has updated FAQs on the ERC, Form 941 X, and updates to the IRS website.
Contact the IRS or a tax professional for assistance or clarification if needed

Deadline and Statute of Limitations

The deadline for submitting Form 941 generally falls on the last calendar day of the following month. For example, for Q1 2021 (January-March), Form 941 is due by April 30, 2021. The employer can still file Form 941 if they have deposited their taxes on time. The end of the quarter. For example, Q1 2020 (January to March) requires that Form 941 be returned by May 10, 2021. Administrative Adjustment Request For Employee Retention Credit

The deadline for submitting Form 941X depends on the time period. It is generally three or two years, depending on the date when the original Form 941 has been filed. For Q1 2020 (January – March), for example, Form 941 is due on April 30, 2020. If an employer filed Form 941 on April 30, 2020, and paid the tax on April 30, 2020, the deadline for filing Form 941-X is April 30, 2023. If an employers filed Forms 941 and paid taxes on June 15, 2019, the deadline is June 15, 2022.

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Conclusion

The Employee Retention Credit (ERC) is a valuable tax benefit that can help employers who were affected by the COVID-19 pandemic keep their employees on the payroll and reduce the impact of the pandemic on their businesses or organizations.

The ERC, a refundable credit, varies according to the time period and number of employees as well as the amount of qualified wage and health insurance expenses paid to employees who are eligible. 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.

If you are an employer who meets the eligibility criteria for the ERC, you should not miss this opportunity to take advantage of this tax benefit. The ERC does not last forever. It has a deadline, and there is a statute of limitations for claiming the ERC. You should file your forms as soon as possible and use the tips and resources provided in this article to fill them out correctly and avoid common errors. For clarifications or help, you can always contact an IRS agent or tax professional.

The ERC can make a big difference for your business or organization and your employees. It will help you to keep your employees, maintain a healthy cash flow, as well as recover from pandemic. We hope that this article helped you to understand more about ERC and the claim process. We thank you for reading. Please stay safe.

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Administrative Adjustment Request For Employee Retention Credit

What is the ERC?

Employee Retention Credit is an employer tax credit available to employers who kept their employees on payroll during COVID-19.

It was created by the CARES Act in March 2020 and was later amended and extended by the CAA (Consolidated Appropriations Act) in December 2020, and the ARPA (American Rescue Plan Act of 2021) in March 2021

Who is eligible for the ERC?

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 order has suspended the business or organization (wholly or partially) due to COVID-19.
Their gross revenues for a quarter calendar in 2020 or in 2021 were lower than a percentage compared to their gross revenues for the same period 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.

How much does the ERC cost?

The amount that an organization or company receives in ERC will depend on many factors.

Among these factors are the time period, employee count, amount of qualifying wages and health insurance cost paid to eligible workers. If you want a more detailed explanation, read the above article.

How to claim the ERC?

To claim the ERC an employer must submit a federal employment reform (Form 941)-X or a revised employment tax return to the IRS.

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 deadline for Form 941 is usually the last day in the month after the end of every quarter. For Form 941X, the deadline is three years following the date on which the original form 941 was filed. This can also be up to two years, based on the date when the tax is paid.