Employee Retention Credit For Workers Not Business

COVID-19 has caused hardships and unprecedented challenges for businesses and organizations all over the world. Due to lockdowns and social distancing as well as health and safety measures, many employers have seen their revenues and expenses drop, while operations are disrupted.

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 describe what the ERC does, how it operates, and explain how to 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 Employee Retention Credit (ERC)? Employee Retention Credit For Workers Not Business

Employee Retention Credit (ERC) is a refundable credit available to tax-exempt and for-profit organizations and businesses that have employees who were affected by COVID-19. The ERC was created by the CARES Act in 2020 and was extended and modified by subsequent legislation in 2021 and 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 Advantages

Credit is a fixed percentage of qualifying wages and health care costs paid by employers to employees.
The percentage and limit will vary depending on when the credit is claimed. 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. 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. Employee Retention Credit For Workers Not Business
The credit will be fully refundable if its amount exceeds that of the employer’s payroll taxes.
Employers can claim this credit if they experienced a significant decrease in gross receipts due to an order from the government relating to COVID-19. In addition, employers who qualify as recovery-startup businesses for 2023 can also claim the credits.
Credits may be obtained by filing a revised employment tax form (Form 941X) or reducing employment deposit amounts in anticipation. 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 company or organization has been suspended, either fully or partly, by an order of the government due to COVID-19 at a particular calendar quarter in 2020/2021
The employer’s gross revenues for a quarterly calendar period in 2020, 2021 or both were less that 50% (for the 2020 quarter) or 80% (2021 quarter) of its gross revenue for the same year-ago quarter.

There is also a special rule that applies to recovery startups, which are businesses that started operations after February 15th 2020 with gross receipts no higher than $1,000,000 on average. These businesses can be eligible for ERC regardless of their revenue decline or suspension.

Business Suspension

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

The order limits commerce, travel, or group meetings due to COVID-19
The order has a direct impact on the operations of an organization or business
The order applies to all calendar quarters in 2020 and 2021

Some examples of government orders that can cause a business suspension are:

Stay-at-home orders prohibiting the operation of non-essential businesses
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 bans and restrictions that restrict the ability for a company to transport services or goods

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

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 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 from any quarter in 2020 is less than 50% its gross receipts from the same calendar 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 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 include:

Sales of Goods & Services
Rents, dividends, and annuities are examples of income streams that include interest, dividends.
Contributions, gifts, grants, and donations Employee Retention Credit For Workers Not Business
Membership fees and dues
Gross profit from business or trade

To calculate and compare gross receipts for different quarters, an employer must use:

The same method of accounting (cash or accrual) that it used to file its federal income tax return for 2019
The same calendar year quarters that it used to file its federal employment tax returns (Form 941) for 2019 and 2020/2021
The same sources as reported in the federal tax return for 2019

Recovery Startup Business

Recovery startup businesses are those that:

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

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

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Credit Amounts and Calculation

There are different ERC rules and amounts for different employers and periods of time. 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
The amount of money paid by the employer to each employee as well as their health insurance during pandemic

To claim the ERC, the employer must fill out and submit a form to the IRS. The employer must provide proof of how much they paid their employees for health insurance as well as 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. Employers must claim their ERC before they expire or become unavailable. The employer also has to use the money wisely and not waste it. Employee Retention Credit For Workers Not Business

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

Time Period

Different laws introduced, amended and terminated the ERC in 2020, 2021 and 2022. The amount of the credit varies according to the time period that it is applied for. 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

Number of Employees

The number of employees affects the definition and calculation of qualified wages and health insurance costs 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 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 refer to wages paid during a period when the business is suspended or revenues are declining. Qualified wages can include severance payment, bonuses, severance tips, sick pay, family pay and other forms compensation. Qualified earnings also include costs associated with providing health insurance coverage to eligible employees. These include premiums as well as deductibles.

The definition and calculation of qualified wages and health insurance costs depend on the employer size and the time period. The following table provides a summary of the rules for different scenarios. Employee Retention Credit For Workers Not Business

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

The Internal Revenue Service (IRS) requires that employers claim the Employee-Retention Credit by filing a federal income tax return, Form 941, or a modified employment tax form (Form941X), with them. The employer must report the qualified wages and health insurance costs paid to eligible employees and the amount of credit claimed for 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. Form 941 allows the employer also to claim ERCs in current or future quarters. The employer can use Form 941 to:

Reduce the amount of taxes that the employer has to deposit with the IRS by the amount of the ERC
The employer can request an advanced payment of the ERC credit if it exceeds taxes that they have to deposit. Employee Retention Credit For Workers Not Business
Carry over any excess credit into the following quarter

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.
Follow the instructions and worksheets provided by the IRS for calculating and reporting the ERC
Use Line 11c to declare the wages and costs of health insurance paid to employees who qualify.
Use Line 13d to report the amount of credit claimed 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
You can report excess credit on Line 25 for the following quarters.
Sign and date Form 941, attaching any supporting documents, schedules, or schedules.

Tips and resources on how to complete Form 941 include:

Use online services (e-file or online filing) to submit Form 941, faster and with greater security.
You can find updates, FAQs, and more information on the IRS site about Form 941, the ERC.
Need clarification? Contact an IRS agent or tax professional.

Form 941-X

The Form 941 X is used for corrections and adjustments to a Form 941. The employer can also claim the ERC retroactively by using Form 941X. Form 941-X can be used by the employer to: Employee Retention Credit For Workers Not Business

Claim a refund or credit for overpaid taxes due to claiming the ERC
Report additional qualified wages paid and health insurance premiums paid to eligible workers that have not been reported on Form 941
You can correct any errors or omissions that may have affected the credit claimed amount on Form 941.

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

Use the latest version 941-X to reflect the updated laws and regulations that impact the ERC.
Follow the IRS instructions and worksheets for calculating the ERC and reporting it.
Use Part 2 to indicate the lines on Form 941 that are being corrected or adapted.
Use Part 3 to explain your corrections or adjustments on Form 941.
Use Line 24 for any additional qualified wage and health insurance expenses paid to eligible workers
Use Line 25 for any additional credit claimed each quarter.
Use Line 26 for any refunds or credits due to ERC claims.
Sign and date Form 941, and attach any supporting documentation 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. Employee Retention Credit For Workers Not Business
File Form 941-X as soon as possible after discovering an error or making an 0adjustment on Form 941
You can find updates, FAQs, and more information on the IRS site about the ERC and Form 941X.
Need clarification? Contact an IRS agent or tax professional.

Deadline and Statute of Limitations

Form 941 must be filed by the last date of the month that follows the end 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 Q1 2021 (January-March), form 941 must be submitted by May 10, 2020, Employee Retention Credit For Workers Not Business

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 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 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

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 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 can be claimed by filing Form 941 or Form 941-X with the IRS and reporting the qualified wages and health insurance costs and the amount of credit claimed for each quarter.

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 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. You can contact the IRS for help or clarification, or you could consult a tax expert.

ERCs are a powerful tool that can help your company or organization, as well as your employees. It can help your business or organization retain workers, maintain cash flow and recover from a pandemic. We hope that this article helped you to understand more about ERC and the claim process. Thanks for reading and please stay safe.

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Employee Retention Credit For Workers Not Business

What is ERC and what does it do?

Employee Retention Credit: This is a credit that employers can claim if they retained employees 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).

Can everyone apply for ERC?

The ERC is not available to everyone. Employers who retained their employees and paid them wages between March 13, 2020, and December 31, 2021, are eligible.

Below are some details about eligibility.

The business or organization was suspended (fully or partially) by government order due to the COVID-19 pandemic.
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.
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 rate?

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. If you want a more detailed explanation, read the above article.

How do I claim my 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).

The employer must report the qualified wages and health insurance costs paid to eligible employees and the amount of credit claimed for each quarter.

When is the deadline to submit the ERC form?

There are two different deadlines to file the ERC Forms: Form 941 (Form 941-X) and Form 941 (941).

The last day to submit Form 941 for each quarter is the last calendar month. The deadline for Forms 941-X, however, is usually three years after the date the original Form was completed. It is also possible to choose a date of two years following the date on which the tax was paid.