Employee Retention Credit Statute Of Limitations

COVID-19, the pandemic that has swept across the globe in recent years, has brought unprecedented challenges and hardships to businesses and organisations around. Many employers faced decreased revenues, increased costs, and disruptions of operations as a result of lockdowns.

The Employee Retention Tax Credit (ERC) is a refundable credit that employers can use to offset 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. The ERC will be explained in this article, along with how it works and the different eligibility criteria and time periods for which it can be claimed.

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

What is Employee Retention Credit? Employee Retention Credit Statute Of Limitations

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 was created by the CARES Act in 2020 and was extended and modified by subsequent legislation in 2021 and 2023. The ERC’s goal is to encourage employers during a crisis to continue to employ their workers, and to offer them health coverage.

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 maximum credit vary depending on how long the credit can be claimed. In 2020, the 50% percentage and $5,000 limit per employee is applicable for the entire calendar year. For 2021, the percentage is 70%, and the limit is $7,000 per employee per quarter. For 2023, there is a 70% percentage for the first 2 quarters followed by 40% for the second two quarters. There is a $10,000 limit per employee. Employee Retention Credit Statute Of Limitations
The credit amount is fully refundable, meaning if the credit exceeds your employer’s tax liability on payroll, you will receive the excess as a reimbursement.
The credit can be claimed by employers who experienced a significant decline in gross receipts or a full or partial suspension of operations due to a qualifying government order related to COVID-19. Employers who are considered to be recovery startup businesses may also claim this credit, but only for 2023.
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. Employers may also request an advanced payment of the credit using Form 7200.

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

Eligibility Criteria

To qualify for the Employee Retention Credit (ERC), an employer must meet one of the following two main criteria:

A government order suspended the employer’s organization or business in full or part due to COVID-19 for a calendar quarter of 2020 or 2021
The employer’s gross receipts for a calendar quarter in 2020 or 2021 were less than 50% (for 2020) or 80% (for 2021) of its gross receipts for the same quarter in 2019

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 qualify for ERC despite business suspensions or revenue decreases.

Business Suspension

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

The order restricts the commerce, travel and group meetings that are prohibited by COVID-19
The order impacts the operations of a business or organization
This order is applicable to any calendar quarter of 2020 or 2021

These are some examples:

Stay-athome orders restrict non-essential enterprises from operating
Businesses are restricted in their operating hours by curfews
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

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.

How the nature and scope and the order affect the operation of the business
The length and frequency of your order and the way it corresponds to 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 in any calendar quarter of 2020 will be less than 50% the gross receipts in the same quarter of 2019.
The gross receipts from any calendar quarter during 2021 are less than 80% compared to the same quarter’s gross receipts from 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 consist of:

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 Statute Of Limitations
Membership fees and dues
Gross revenue from businesses or trades

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

The same method of accounting (cash or accrual) that it used to file its 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 revenue that they reported on their federal income tax return in 2019

Recovery Startup Business

A recovery startup business is a business that:

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

It does not matter if a business meets the criteria of revenue decline or business suspension, a recovery-startup business qualifies for the ERC. There are certain limitations and rules that apply to recovery startups businesses.

The maximum credit amount per quarter is $50,000
The credit can only be used for wages paid between the third and the fourth quarters of 2020
Credits for recovery startups are subject to a maximum of $250 million.

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Credit Amounts and Calculation

There are different ERC rules and amounts for different employers and periods of time. The ERC’s main influences are:

How much the employer’s business was affected by the pandemic, either by having to close or reduce operations due to government orders or by having a big drop in income compared to 2019
How many employees an employer had in 2019, 2020/2021 or whether they worked, or did not work during the pandemic
The amount of money paid by the employer to each employee as well as their health insurance during pandemic

Employers must complete and send IRS forms to claim 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 check the forms and give the money to the employer. The employer may use the money in order to pay their employees’ health insurance premiums, or get refunds for their payroll tax.

The ERC is not available forever. The ERC will expire in September 2022. The employer is required to claim ERCs before they expire, or are no longer available. The employer should also make sure to not waste the money. Employee Retention Credit Statute Of Limitations

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

Time Period

The ERC was introduced, amended, and terminated by different laws in 2020, 2021, and 2022. The credit amount depends on the period for which you claim it. The following table summarizes the key features and differences of the ERC 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

Number of Employees

The number employed affects how wages are calculated and defined, as well as the health insurance premiums 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. This table summarizes thresholds and rules to determine the size of an employer for each period.

Time Period	Small Employer Threshold	Large Employer Threshold
2020	Less than or equal to 100 FTEs in 2019	More than 100 FTEs in 2019
Q1-Q2 2021	Less than or equal to 500 FTEs in 2019	More than 500 FTEs in 2019
Q3-Q4 2021	Less than or equal to 500 FTEs in any calendar quarter in either calendar year beginning after December 31, 2019, and ending before July 1, 2021. If an employer did not have in either calendar year beginning after December 31, 2019, and ending before July 1, 2021, the employer is treated as a small eligible employer if it had less than or equal to 500 FTEs in any calendar quarter beginning after June 30, 2021. For recovery startup businesses, the employer size is irrelevant. For severely financially distressed employers, the employer size is irrelevant if the employer had a revenue decline of more than 90%. Otherwise, the same rules as Q1-Q2 2021 apply.	More than 500 FTEs in any calendar quarter in either calendar year beginning after December 31, 2019, and ending before July 1, 2021. If an employer did not exist in either calendar year beginning after December 31, 2019, and ending before July 1, 2021, the employer is treated as a large eligible employer if it had more than 500 FTEs in any calendar quarter beginning after June 30, 2021.

To count FTEs for a given year or quarter, an employer must use the following steps:

Count the number of employees who worked at least 30 hours per week (or at least 130 hours per month) for each month in the year or quarter
Add up the total hours worked by all other employees (who are not counted as FTEs) for each month in the year or quarter
Divide the total hours by120and round down to the nearest whole number
Add the number of FTEs from Step One and Step Three for each month in the year or quarter
Calculate the average number of FTEs by adding up the monthly totals and dividing by 12 (for a year) or 3 (for a quarter)

Qualified Wages and Health Insurance Costs

Qualified Wages are wages that eligible employees receive during periods of suspension or decline in revenue. Qualified wages include tips, commissions, bonuses, severance pay, sick leave pay, family leave pay, and other forms of compensation. Qualified wages include health insurance costs for eligible employees such as co-pays and deductibles.

The size of an employer’s business and the period in which they operate will determine the definition and calculation for qualified wages and health care costs. The table below summarizes rules and examples in different scenarios. Employee Retention Credit Statute Of Limitations

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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Claiming and Reporting 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 reports the quarterly federal tax liability of an employer, including income tax and Medicare taxes. Form 941 allows the employer also to claim ERCs in current or future quarters. Form 941 is used by employers to:

ERCs can be used to reduce the amount of tax that an employer must pay to the IRS.
You can ask for advance payment if your ERC exceeds the amount of taxes you have to pay. Employee Retention Credit Statute Of Limitations
Any excess credit can be carried forward to the next quarter

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

Use the most recent version of Form 941, which reflects any changes or updates to the ERC laws.
For calculating and reporting your ERC, follow the IRS’s instructions and worksheets.
Use Line 11c for the amount of qualified wages and health benefits paid to eligible employees
Report the amount of credit claimed each quarter using Line 13d.
Line 13f is used to report any advance payment of credit received by the IRS
If you need to receive an advance payment, use Line 24.
You can report excess credit on Line 25 for the following quarters.
Sign Form 941, date it and attach any documents or schedules that you wish to include.

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

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

Form 941-X

Form 941-X allows you to correct mistakes or make adjustments in Form 941 that has already been filed. Form 941-X also allows the employer to claim the ERC retroactively for past quarters. Form 941-X can be used by the employer to: Employee Retention Credit Statute Of Limitations

Claim your refund or credit due to overpaid taxes by claiming the ERC
Report additional qualified earnings and health benefits paid to eligible employee that weren’t reported on Form 941.
Correction of errors or omissions on Form 941 which affect credit amount claimed

Employers can avoid common mistakes by filling in Form 941X correctly.

Use the most recent version of Form 941X, which reflects any changes or updates to the ERC laws.
Follow the instructions and worksheets provided by the IRS for calculating and reporting 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
Use Line 24 for any additional qualified wage and health insurance expenses paid to eligible workers
Use Line 25 to report any additional amount of credit claimed for each quarter
Use Line 26 to report any credit or refund due to the ERC claim.
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:

File a separate Form 941-X for each quarter that is being corrected or adjusted Employee Retention Credit Statute Of Limitations
File Form 941-X as soon as possible after discovering an error or making an 0adjustment on Form 941
Updates, FAQs, and guidance about Form 941X and ERC can be found on the IRS website.
You can also contact a tax expert or the IRS for clarification or additional assistance.

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, Form 941 for Q1 of 2021 (January to March) is due April 30, 2020. The employer can still file Form 941 if they have deposited their taxes on time. After the end of the quarterly period. For example, the Q1 of 2021 is January-March. The Form 941 should be received by May 10th, 2021. Employee Retention Credit Statute Of Limitations

Form 941X must be filed within three years of the original filing date or two from the payment date, whichever comes later. For Q1 2020 (January – March), for example, Form 941 is due on 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 by June 15, 2020, then the deadline to file Form 941-X will be 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, a refundable credit, varies according to the time period and number of employees as well as the amount of qualified wage and health insurance expenses paid to employees who are eligible. You can claim the ERC by submitting Form 941 to the IRS. This form will ask you for the number of employees, the amount paid in qualified wages and insurance costs each quarter, and how much credit is being claimed.

Do not miss out on this opportunity if you’re an employer that meets the ERC eligibility criteria. The ERC has a time limit and deadline for claiming. 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 can be used to help retain your employees, maintain your cash flow, and recover in the event of a pandemic. This article is intended to help you better understand the ERC, and how it can be claimed. We thank you for reading. Please stay safe.

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Employee Retention Credit Statute Of Limitations

What is an ERC?

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

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).

Who is eligible for the ERC?

Not everyone is eligible for the ERC. Employers who retained their employees and paid them wages between March 13, 2020, and December 31, 2021, are eligible.

More details are available above. But here are some of the highlights.

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.
The business is a startup that started operations after February 15, 2020, and has an average gross revenue of less than $1 million.

What is the ERC worth?

The amount of ERC an organization or business receives depends on 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. If you want a more detailed explanation, read the above article.

How do I claim my ERC?

To receive the ERC, employers must file with the IRS a Form 941-X (revised employment tax returns) or a Federal Employment Tax Reform.

Employers must submit quarterly reports detailing the amounts of the tax credit, the wages paid and the health insurance premiums that they have claimed to be reimbursed.

When is the deadline to file the ERC Forms

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

For Form 941 is generally the last day of the month following the end of each quarter. In contrast, the deadline to submit Form 941 X is generally set at three years since the date of the original 941. The deadline can be two years after the date the tax was paid. However, the latter date is preferred.