Amended Form 941 Employee Retention Credit

COVID-19’s pandemic caused unimaginable hardships to many organizations and businesses around the globe. Many employers faced decreased revenues, increased costs, and disruptions of operations as a result of lockdowns.

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 was first enacted by the CARES Act in 2020 and was later extended and modified by subsequent legislation in 2021 and 2023. This article will explain the ERC, how it functions, and how you can claim it.

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? Amended Form 941 Employee Retention Credit

The Employee Retention Credit (ERC) is a refundable tax credit for businesses and tax-exempt organizations that had employees and were affected 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

Credit is a fixed percentage of qualifying wages and health care costs paid by employers to employees.
The credit limit and percentage are dependent on the period of time for which you claim the credit. For 2020 the percentage is set at 50%, while the maximum per employee is set at $5,000. In 2021, 70% of the employees will be eligible for the maximum. The limit per employee is $7,000. In 2023, 70% of the employees will be eligible for the first two quarterly limits and 40% in the final two. The limit for each employee is $10,000. Amended Form 941 Employee Retention Credit
The credit will be fully refundable if its amount exceeds that of the employer’s payroll taxes.
The credit is available to employers who suffered a significant reduction in gross revenues or a partial or full suspension of operations because of an eligible government order relating COVID-19. Employers who are considered to be recovery startup businesses may also claim this credit, but only for 2023.
The credit can be claimed by filing an amended employment tax return (Form 941-X) or by reducing employment tax deposits in anticipation of the credit. Employers can also request an advance payment of the credit by filing Form 7200.

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Eligibility Criteria

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

The employer’s business or organisation was suspended in whole or in part by a government decree due to the COVID-19, during a quarter calendar of 2020 or 21
Gross receipts of an employer for a quarter calendar in 2020 or in 2021 are less than half (for 2020) and 80% (for 2021) their gross receipts from the same period in 2019.

A special rule is in place for businesses that have started operating after February 15, 2020, and whose average gross receipts per year are no more than one million dollars. These businesses can be eligible for ERC regardless of their revenue decline or suspension.

Business Suspension

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

The order prohibits travel, group meetings, and commerce due to COVID-19
The order has a direct impact on the operations of an organization or business
Order applies to any calendar year in 2020 or 21

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

Orders to stay at home that prevent non-essential companies from operating
Curfews are restrictions on the hours that certain businesses can operate
Limits in capacity that restrict the number or clients that a business can serve
Travel bans or restrictions that affect the ability of a business to transport goods or services

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

The order’s nature, scope, and impact on the business
The duration and frequency of the order and how it coincides with the calendar quarters
The impact and magnitude of the order to the business’s revenues and costs

Revenue Decline

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

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 revenues for any calendar-quarter in 2021 will be less than 80 percent of the gross revenue in 2019 for that same quarter.

Gross receipts are the total sums that an organization or a business has accrued or received from all its sources in a given accounting year, without any deductions. Gross receipts are:

Sales of Goods & Services
Interest, dividends, rents, royalties, and annuities
Gifts, donations, and contributions Amended Form 941 Employee Retention Credit
Membership fees and dues
Gross business income

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

Use the same method (cash or accrual accounting) as it used when filing its federal income taxes 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 income that it reported on its federal income tax return for 2019

Recovery Startup Business

The recovery startup business is one that:

Start any new business or occupation after February 15, 2019,
The average annual gross receipts for the three tax years ending in the year preceding the quarter for which credit is calculated cannot exceed $1 million

If a business is in recovery, it can still qualify for ERC even if the business has been suspended or its revenue has declined. Recovery Startup Businesses are still subject to some restrictions and special rules.

The maximum credit per quarter will be $50,000
The credit is only available for wages paid in the third and fourth quarters of 2021
The credit is subject to an overall cap of $250 million for all recovery startup businesses

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Credit Amount and Calculation

For different lengths of time, different types of employers and different amounts of ERC, the ERC has different rules. The ERC is affected by the following main factors:

How much of the employer’s income was affected in 2019 by the pandemic.
How many employees the employer had in 2019 or 2020/2021, and whether they worked or not during the pandemic
How much each employee received from their employer and how they were covered by health insurance in 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 check the forms and give the money to the employer. The employer could use this money to pay health insurance for employees or to get refunds and credits for payroll taxes.

The ERC is not available forever. The ERC began in March 2020, and it will end in September 2022. The employer is required to claim ERCs before they expire, or are no longer available. The employer must also spend the money properly and not waste any of it. Amended Form 941 Employee Retention Credit

Below you will find detailed information on ERC, including the amount of credit and the calculation.

Time Period

The ERC has been introduced, modified, and terminated in different laws between 2020 and 2021. The amount of the credit varies according to the time period that it is applied for. The following table summarizes and compares the ERC’s main features for each 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 employees affects the definition and calculation of qualified wages and health insurance costs for eligible employees. A small employer or a large employer is determined by the number of employees who worked full-time (FTEs) in 2019 and the time period. The table below summarizes all the rules and thresholds that determine an employer’s 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)

Earnings and Costs of Health Insurance

Qualified wages are wages paid to eligible employees during a period of business suspension or revenue decline. Qualified wage includes tips and bonuses, as well as severance, pays, sick leave payments, family leave payments and other types of compensation. Qualified earnings also include costs associated with providing health insurance coverage to eligible employees. These include premiums as well as deductibles.

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. Amended Form 941 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

For the Internal Revenue Service to grant the Employee Retention credit (ERC), employers must file either a federal tax return for employment (Form 941), or an amended tax return for employment (Form941-X). The employer has to report each quarter the wages and costs of health insurance paid to employees who are eligible and 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 employers to claim ERCs for current or future quarterly periods. Form 941 is used by employers to:

Reduce the amount of taxes that the employer has to deposit with the IRS by the amount of the ERC
Request an advance payment of the ERC if the credit exceeds the taxes that the employer has to deposit Amended Form 941 Employee Retention Credit
Carry over any excess credit into the following quarter

To ensure the correct completion of Form 941, and to avoid common errors:

Use the most recent version of Form 941, which reflects any changes or updates to the ERC laws.
The IRS has provided worksheets to help you calculate the ERC.
Use Line 11c for the amount of qualified wages and health benefits paid to eligible employees
Use Line 13d for the credit claim amount per quarter
Use Line 13f to declare any advance payments received from the IRS.
Line 24 is the place to ask for an advance payment if you need it.
Use Line 25 to report any excess credit that can be carried forward to subsequent quarters
Sign Form 941, date it and attach any documents or schedules that you wish to include.

Tips and resources on how to complete Form 941 include:

Use online services or electronic filing to submit Form 941 more quickly and securely
The IRS website has updated FAQs on the ERC and Form 941.
Contact the IRS or a tax professional for assistance or clarification if needed

Form 941-X

Form 941-X is used to correct errors or make adjustments on a previously filed Form 941. The Form 941X allows the employer retroactively to claim ERC for previous quarters. The employer can use the Form 941 X to: Amended Form 941 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.
Correct any errors or omissions you find on Form 941, which may affect your credit claim.

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

Use the latest Form 941-X which reflects all the updates and changes made to the ERC by new laws.
The IRS has provided worksheets to help you calculate the ERC.
Use the Part 2 to indicate on which lines you are correcting or adjusting Form 941
Use Part 3 for explaining why form 941 has been corrected or adjusted
Line 24 is used to report additional wages and health insurance premiums paid to eligible employees.
Use Line 25 to claim any additional credit for each quarter.
You can use Line 26 to request a refund or credit due to claiming ERC.
Sign and date Form 941-X and attach any supporting documents or schedules

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

Filter a separate Form 941/X for every quarter that needs to be corrected or adjusted Amended Form 941 Employee Retention Credit
Fill out Form 941-X immediately after you find an error in Form 941
Visit the IRS website to get the latest updates, FAQs, and guidance regarding Form 941-X, the ERC, and other forms.
If you need clarification or assistance, contact the IRS or an accountant.

Deadline and Statute of Limitations

The deadline to submit Form 941 is usually the last day in the month following each quarter. For Q1 2021 (January-March), the Form 941 must be filed by April 30th, 2021. Nevertheless, if the employer deposited all taxes due in a given quarter on time, they may file Form 941 before the 10th day. After the end of the quarterly period. For example, Q1 2020 (January to March) requires that Form 941 be returned by May 10, 2021. Amended Form 941 Employee Retention Credit

The deadline to file Form 941-X generally is three years after the date the original Form 941 is filed, or two years after the date the tax is paid. For Q1 of 2020 (January through March), the deadline for Form 941 to be filed was 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 on June 15, 2020, the deadline for filing Form 941-X is June 15, 2022.

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Conclusion

Employee Retention Tax Credit (ERC), is a valuable financial benefit that helps employers to keep their employees employed and reduces the impact COVID-19 has on their organization or business.

The ERC (Eligible Employees Credit) is a tax credit that can vary depending on the time frame, the number and type of employees employed, and the amount paid in wages and insurance to employees eligible for the credit. The ERC is claimed by filing IRS Form 941 or 941-X and reporting qualified wages, health insurance costs, and the credit amount claimed for each quarter.

Do not miss out on this opportunity if you’re an employer that meets the ERC eligibility criteria. The ERC is not available forever and has a deadline and a statute of limitations for claiming it. 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.

ERCs can be a huge help to your organization or business and its 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. Thank you for reading, and stay safe.

> > Click Here to Find Out if You are Eligible for ERC < <

Amended Form 941 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

Are all ERC applicants eligible?

Not everyone is eligible for the ERC. Only employers who paid wages and retained employees between March 13, 2019, and December 31, 2020, are eligible.

You can read more about the criteria here. Here are some highlights.

A government order has suspended the business or organization (wholly or partially) due to COVID-19.
Their gross receipts for a calendar quarter in 2020 or 2021 were less than a percentage of their gross receipts for the same quarter in 2019.
You are a new business in recovery that has started operating after February 15th, 2020. Your average annual gross sales is no more than $1,000,000.

What is the ERC worth?

The amount ERC received by a business or organization will depend upon several factors.

Some of these factors include the time period, the number of employees, the number of qualified wages, and health insurance costs paid to eligible employees. The article above provides a detailed explanation on how ERC is calculated.

How to claim 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.

What is the deadline for submitting the ERC forms?

The deadlines for filing ERC forms for Forms 941 and form 941 X are different.

The deadline for Form 941 is usually the last day in the month after the end of every quarter. Meanwhile, the deadline for Form 941-X is generally three years from the date that the original Form 941 was filled. It can be as late as two years after you paid the tax, but the later date is the preferred date.