Employee Retention Credit Scam

The COVID-19 pandemic has caused unprecedented challenges and hardships for many businesses and organizations around the world. 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 first became law in 2020 with the CARES Act. It was then extended and modified in subsequent legislations in 2021 and 2023. This article will explain what the ERC is, how it works, and how to claim it for different time periods and eligibility criteria.

For a brief reading of what the Employee Retention Credit or ERC is, take a look at this video from the YouTube channel “ERC Specialists”. You can also continue below to read an in-depth explanation of ERC.

What is the Employee Retention Credit? Employee Retention Credit Scam

Employee Retention Tax Credit (ERC), is a refundable tax credit for organizations and businesses with employees who have been 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 encourages employers to maintain their workers and to provide health benefits to them during the crisis.

The Main Features and Benefits

The credit is a percentage of wages and health insurance premiums paid by eligible employees. There are limits per employee, per quarter.
The credit limit and percentage are dependent on the period of time for which you claim the credit. In 2020, the 50% percentage and $5,000 limit per employee is applicable for the entire calendar year. For 2021, there is a 70% percentage and a limit of $7,000 per employee per quarter. For 2023, the percentage is 70% for the first two quarters and 40% for the last two quarters, and the limit is $10,000 per employee per quarter. Employee Retention Credit Scam
The credit is fully refundable, which means that if it exceeds the employer’s payroll tax liability the excess amount will be returned to the employer.
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. For 2023 only, employers that are classified as recovery startup business can claim the credit.
Credits may be obtained by filing a revised employment tax form (Form 941X) or reducing employment deposit amounts in anticipation. The credit can be requested in advance by employers using Form 7200.

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

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
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.

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 can qualify for the ERC regardless of business suspension or revenue decline.

Business Suspension

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

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

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

Orders to stay at home that prevent non-essential companies from operating
Curfews that limit the hours of operation for certain businesses
Capacity limitations that reduce the amount of customers or clientele that a firm can service
Travel bans and restrictions that restrict the ability for a company to transport services or goods

To determine if a business was fully or partially suspended by a government order, an employer must consider:

The scope and nature of the order as well as how it impacts the business.
The order’s duration, frequency, and alignment with the calendar quarters
The impact of an order on revenue and expenses

Revenue Decline

A significant decline in gross revenues is experienced by a business or organization 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 receipts for any calendar quarter in 2021 were less than 80% of its gross receipts for the same quarter in 2019

Gross receipts refer to the total of all money received or accrued during a company’s annual accounting period. Gross receipts are:

Sales of Goods & Services
Dividends (rents), royalties and interest
Contributions, gifts and grants Employee Retention Credit Scam
Membership fees and dues
Gross income from trades or businesses

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

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

Recovery Startup Business

A recovery startup is a business:

Begun carrying on any business after February 15th, 2020
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

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 still subject to some restrictions and special rules.

Maximum credit per quarter: $50,000
The credit can only be used for wages paid between the third and the fourth quarters of 2020
All recovery startup businesses are subject to an aggregate cap of $250,000,000.

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

Credit Amount and Calculation

ERCs have different rules and amounts depending on the length of time and type of employer. The ERC is affected primarily by:

The employer’s business has been affected by the pandemic. This could be due to the government ordering the closure or reduction of operations or a significant drop in income from 2019.
How many employees an employer had in 2019, 2020/2021 or whether they worked, or did not work during the pandemic
How much the employer paid to each employee and their health insurance during the pandemic

To claim the ERC, the employer must fill out and submit a form to the IRS. The forms have to show how much the employer paid to their employees and their health insurance and why they qualify for the ERC. The IRS will verify the forms, and then give the money to your employer. The employer can then use the money for paying their employees, their health insurance and/or to receive refunds or credits on their payroll tax.

The ERC will no longer be available. It began in March 2019 and will finish in September 2020. The employer must claim the ERC prior to its expiration or becoming unavailable. The employer has to spend the money efficiently and not waste. Employee Retention Credit Scam

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 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. According to the time frame and number of full-time equivalents (FTEs), an employer can be classified as a small employer or large employer. The 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)

Qualified Wages and Health Insurance Costs

Qualified wages are wages paid to eligible employees during a period of business suspension or revenue decline. Qualified wages can include severance payment, bonuses, severance tips, sick pay, family pay and other forms compensation. Qualified wages include health insurance costs for eligible employees such as co-pays and deductibles.

The employer size, the time period and the calculation of the qualified wage and health insurance cost will affect the calculation. This table summarises the rules and provides examples for various scenarios. Employee Retention Credit Scam

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

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

Claim the Credit and Report It

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 allows employers to declare their quarterly federal taxes, including income taxes, Medicare and Social Security tax. Form 941 is used by the employer to claim ERC for the current quarter or future. The employer can use the Form 941 for:

ERC reduces the amount that employers must deposit with the IRS in order to pay taxes.
Request an advance payment of the ERC if the credit exceeds the taxes that the employer has to deposit Employee Retention Credit Scam
Carry forward any excess credits to future quarters

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

Use the latest version 941 which reflects updates and changes in the ERC.
Follow the IRS instructions and worksheets for calculating the ERC and reporting it.
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 if you require an advance credit payment.
Use Line 25 to report any excess credit that can be carried forward to subsequent quarters
Sign and date Form 941 and attach any supporting documents or schedules

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

Use electronic filing services (efile) and online services to submit the Form 941 faster, more securely
Visit the IRS website to get the latest updates, FAQs, and guidance regarding Form 941 and ERC.
For clarifications or help, you can contact the IRS.

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 Form 941-X to: Employee Retention Credit Scam

Claim refunds or credits for taxes overpaid due to 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.

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 Part 2 to indicate which lines of Form 941 are being corrected or adjusted
Use Part 3 to explain your corrections or adjustments on Form 941.
Use Line 24 to report any additional qualified wages and health insurance costs paid to eligible employees
Use Line 25 for any additional credit claimed each quarter.
Use Line 26 when reporting any refund or credit that you have requested as a result of claiming your ERC
Attach any supporting documents and schedules to Form 941-X.

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

Fill out a separate form 941-X per quarter being corrected or recalculated Employee Retention Credit Scam
File Form 941-X as soon as possible after discovering an error or making an 0adjustment on Form 941
The IRS website has updated FAQs on the ERC, Form 941 X, and updates to the IRS website.
Need clarification? Contact an IRS agent or tax professional.

Deadline and Statute of Limitations

The deadline for submitting Form 941 generally falls on the last calendar day of the following month. For example, Q1 2020 (January-March) Form 941 will be due on 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, for Q1 2021 (January-March), Form 941 is due by May 10, 2021, Employee Retention Credit Scam

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 example, for Q1 2020 (January-March), Form 941 was due by April 30, 2020. If an employer files Form 941 by April 30, 2020 and pays the tax on April 30 2020, then the deadline to file Form 941-X will be 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.

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

Conclusion

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

The ERC is a refundable tax credit. It varies based on time, number of employees, and amount of wages and health insurance paid to eligible employees. The ERC 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.

You should not miss the opportunity to benefit from this tax incentive if you are an eligible employer. 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. If needed, you can also reach out to the IRS or a professional tax advisor for clarification or help.

ERC can have a significant impact on your business, organization, and your employees. It can help your business or organization retain workers, maintain cash flow and recover from a pandemic. This article aims to provide you with more information about the ERC. Stay safe and thank you for reading.

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

Employee Retention Credit Scam

What is an ERC?

The Employee Retention Credit is a tax credit for employers who retained their employees in their payroll during the COVID-19 pandemic.

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?

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.

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

The business or organization was suspended (fully or partially) by government order due to the COVID-19 pandemic.
Their gross receipts in a quarter of 2020 or 2021 are less than the percentage of their gross revenue in the same quarter of 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 is the ERC?

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

Some of these include the time period and number of employees. Others are the amount paid in qualified wages or health insurance to eligible employees. You can read the article above for a more detailed explanation of how ERC is calculated.

How to claim the ERC?

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

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

What is the deadline for submitting the ERC forms?

The deadlines of Form 941, Form 941X and ERC 941 are different.

Form 941 deadline is typically the last of the month following each quarter. While the deadline for the Form 941-X will be three years after you filled out the original Form 941. The deadline can be two years after the date the tax was paid. However, the latter date is preferred.