Employee Retention Credit Cpe Course

COVID-19’s pandemic caused unimaginable hardships to many organizations and businesses around the globe. Many employers have experienced reduced revenues, higher expenses, and disruptions to their operations because of lockdowns, distancing from social media, and health-and-safety measures.

To help employers keep their employees, and to provide them with health insurance during these difficult times, the U.S. federal government has created the Employee Retention credit (ERC), an refundable tax credits that can offset some of payroll costs for employers who qualify.

The ERC, which was originally enacted in 2020 by the CARES Act, was extended and modified later by subsequent legislation in both 2021 & 2023.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 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? Employee Retention Credit Cpe Course

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 has been created by the CARES Act for 2020. It was further extended and modified with subsequent legislation in 2021, 2023. The ERC aims to encourage employers to keep their workers on the payroll and provide them with health benefits during the crisis.

Main Features and Benefits

Credits are equal in percentage to the wages and insurance costs that employees who qualify for them have paid, but there is a maximum per employee.
The percentage and the limit vary depending on the time period for which the credit is claimed. In 2020, 50% of the employees will be eligible for the credit, with a maximum limit of $5,000 per employee. For 2021, the percentage will be 70%, and the limit per quarter is $7,000 for each employee. 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. Employee Retention Credit Cpe Course
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 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. Alternatively, for 2023 only, employers who are considered recovery startup businesses can also claim the credit.
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. By submitting Form 7020, employers can request an early payment of their credit.

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Eligibility Criteria

To qualify for the Employee Retention Credit (ERC), an employer must meet one of the following two main 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
The gross receipts of the employer for a calendar-quarter in 2020 or 2020 were less than 50 percent (for 2020), or 80 percent (for 2021), of their gross receipts during the same calendar quarter 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 may qualify for ERC regardless of revenue or business suspension.

Business Suspension

A government order may suspend a business, or even partially suspend it.

The order restricts commerce, travel or group meetings because of COVID-19
The order has an impact on the business or organization
Order applies to any calendar year in 2020 or 21

Here are some examples of government orders that can result in a business being suspended:

Stay-athome orders restrict non-essential enterprises from operating
Curfews that limit the hours of operation for certain businesses
Limits on the capacity of a business that limit how many customers or clients it can serve
Travel restrictions or bans that impact the ability of an organization to transport goods and 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 duration and frequency of the order and how it coincides with the calendar quarters
The magnitude and impact of the order upon the revenue and expenses of a business

Revenue Decline

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

The gross receipts of any calendar quarter in 2020 are less than half the gross receipts of the same quarter in 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 the total amount that a business or organization has received or accrued from all sources, during its annual accounting period. Gross receipts can include:

Sales of Goods & Services
Dividends (rents), royalties and interest
Gifts, donations, and contributions Employee Retention Credit Cpe Course
Membership dues
Gross business income

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

The same method of account (cash, accrual or accrual) was used in filing the federal income tax return.
The same quarters in the calendar year as those used for the federal employment tax returns (Form 941) filed by 2019 and 2020/2021
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:

Began carrying on any trade or business after February 15, 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. However, there are some limitations and special rules that apply to recovery startup businesses, such as:

The maximum credit amount 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
All recovery startup businesses are subject to an aggregate cap of $250,000,000.

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Credit Amounts Calculation

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

How much an employer’s company was affected 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

The employer has to fill out some forms and send them to the IRS to claim the ERC. The employer has to fill out the forms and show how much he paid his employees, as well their health insurance, to qualify for ERC. The IRS will examine the forms to determine if the employer is eligible and then pay him the money. The employer may use the money in order to pay their employees’ health insurance premiums, or get refunds for their payroll tax.

The ERC won’t be around forever. It began in March 2019 and will finish in September 2020. The employer must claim ERC before the expiration date or when it becomes unavailable. The employer has to spend the money efficiently and not waste. Employee Retention Credit Cpe Course

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

Time Period

The ERC has been introduced, modified, and terminated in different laws between 2020 and 2021. The credit amount depends on the period for which you claim it. 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

The Number of Employees

The number employed affects how wages are calculated and defined, as well as the health insurance premiums for eligible employees. An employer is considered a small or large employer depending on the time period and the number of full-time employees (FTEs) it had in 2019. 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 are wages that eligible employees receive during periods of suspension or decline in revenue. Other forms of compensation are also included in qualified wages, such as tips, bonuses and commissions. Qualified salaries also include the costs of providing health coverage to eligible workers, including premiums, copays, deductibles, and coinsurance.

The employer size, the time period and the calculation of the qualified wage and health insurance cost will affect the calculation. The following table provides a summary of the rules for different scenarios. Employee Retention Credit Cpe Course

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 is used by employers to report their quarterly federal tax liabilities, which includes income tax, Medicare tax, and social security tax. The employer can also claim the ERC in Form 941 for future or current quarters. The employer can use Form 941 to:

ERCs can be used to reduce the amount of tax that an employer must pay to the IRS.
You can ask for advance payment if your ERC exceeds the amount of taxes you have to pay. Employee Retention Credit Cpe Course
Carry forward any excess credits to future quarters

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

Use the newest version of the Form 941, which reflects changes to laws that impact the ERC.
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 for the credit claim amount per quarter
Use Line 13f for any advance payment received from IRS.
Line 24 is the place to ask for an advance payment if you need it.
Line 25 is the place to enter any excess credit which can be carried to a subsequent quarter.
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 electronic filing services (efile) and online services to submit the Form 941 faster, more securely
Check the IRS website for updates, FAQs, and guidance on Form 941 and the ERC
You can also contact a tax expert or the IRS for clarifications and assistance if you need it.

Form 941-X

Form 941-X is used to correct errors or make adjustments on a previously filed Form 941. The employer can also claim the ERC retroactively by using Form 941X. The employer can use Form 941-X to: Employee Retention Credit Cpe Course

Claim refunds or credits for taxes overpaid due to the ERC
Report additional qualified wages and health insurance costs paid to eligible employees that were not reported on Form 941
You can correct any errors or omissions that may have affected the credit claimed amount on Form 941.

The employer should:

Use the most recent version of Form 941X, which reflects any changes or updates to the ERC laws.
Follow the IRS instructions and worksheets for calculating the ERC and reporting it.
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
Use Line 24 to report any additional qualified wages and health insurance costs paid to eligible employees
Use Line 25 to report any additional amount of credit claimed for each quarter
Use Line 26 for any refunds or credits due to ERC claims.
Attach any supporting documents and schedules to Form 941-X.

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

File a separate Form 941-X for each quarter that is being corrected or adjusted Employee Retention Credit Cpe Course
If you discover an error on Form 941 or make an adjustment, file Form 941X as soon as you can.
You can find updates, FAQs, and more information on the IRS site about the ERC and Form 941X.
For clarifications or help, you can contact the IRS.

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 for Q1 (2021) (January – March), Form 941 should be submitted by April 30, 2019. 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. After the end quarter. For example, the Q1 of 2021 is January-March. The Form 941 should be received by May 10th, 2021. Employee Retention Credit Cpe Course

The deadline for filing Form 941-X is generally three years from the date that the original Form 941 was filed or two years from the date that the tax was paid, whichever is later. For example, Q1 2019 (January to March), Form 941 had to be submitted by April 30, 2019. If an employer submitted Forms 941 on 30 April 2020 and the tax was paid on 30 April 2020, it is now April 2023 before they can file Forms 941-X. If an employee filed Form 941 April 30, 2020 and paid tax June 15, 2020 the deadline for submitting Form 941 X is June 15, 222.

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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 can be claimed by filing Form 941 or Form 941-X with the IRS and reporting the qualified wages and costs of health insurance paid to eligible workers. 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 is not available forever and has a deadline and a statute of limitations for claiming it. To avoid making common mistakes, you should fill out the forms correctly using the information and tips in this article. You can also contact the IRS or a tax professional for assistance or clarification if needed.

ERCs can be a huge help to your organization or business and its employees. It can help your business or organization retain workers, maintain cash flow and recover from a pandemic. This article is intended to help you better understand the ERC, and how it can be claimed. Thank you for reading. Stay safe.

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Employee Retention Credit Cpe Course

What is the ERC?

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

The CARES Act, passed by Congress in March of this year, was amended in December of that year by the CAA Act. In March 2021, the ARPA Act (American Rescue Plan Act of 2021), was extended.

Is everyone eligible for the ERC?

ERCs are not available to all. 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 imposed a suspension (full or partial) on the business or organization 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.
These businesses are recovery startups that have been in operation since February 15, 2020. They also generate gross revenues of no more than $1 million on average per year.

How much does the ERC cost?

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

Among these factors are the time period, employee count, amount of qualifying wages and health insurance cost paid to eligible workers. To learn more about how ERCs are calculated, please read the article.

How to claim the ERC?

To claim ERC benefits, an employer needs to file Form 941X or federal employment tax reform with 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 submit the ERC form?

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

The last day for Form 941 in most cases is the last month following the end each quarter. For Form 941X, the deadline is three years following the date on which the original form 941 was filed. It can be as late as two years after you paid the tax, but the later date is the preferred date.