Erc - Employee Retention Credit

The COVID-19 pandemic has caused unprecedented challenges and hardships for many businesses and organizations around the world. Lockdowns, social distance, health and security measures and lockdowns have caused many employers to face reduced revenue, increased expenses and disruptions in their operations.

The Employee Retention Tax Credit (ERC) is a refundable credit that employers can use to offset payroll costs.

The ERC, which was originally enacted in 2020 by the CARES Act, was extended and modified later by subsequent legislation in both 2021 & 2023.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

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 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.

Main Features and Advantages

Credits are equal to a percent of the qualified wages and costs for health insurance paid to eligible employees up to a limit per employee each quarter.
The credit limit and percentage are dependent on the period of time for which you claim the credit. For 2020 the percentage is set at 50%, while the maximum per employee is set at $5,000. In 2021, 70% of the employees will be eligible for the maximum. The limit per employee is $7,000. In 2023, 70% of the employees will be eligible for the first two quarterly limits and 40% in the final two. The limit for each employee is $10,000. Erc – Employee Retention Credit
The credit is fully refundable, meaning that if the amount of the credit exceeds the employer’s payroll tax liability, the excess will be paid to the employer as a refund.
Employers who have experienced a significant drop in gross receipts or a complete or partial suspension of their operations as a result of a government order relating to COVID-19 can claim the credit. Employers who are considered to be recovery startup businesses may also claim this credit, but only for 2023.
Credits may be obtained by filing a revised employment tax form (Form 941X) or reducing employment deposit amounts in anticipation. Employers can request an advance payment by submitting 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 organization was fully or partially suspended by a government order due to COVID-19 during a calendar quarter in 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

An order of the government can suspend a business or an organization in full or part if it:

The order prohibits travel, group meetings, and commerce due to COVID-19
The order affects the operations of the business or organization
The order will apply to any calendar month in 2020 or even 2021

Examples of government orders which can lead to a suspension of business include:

Stay-at-home orders restricting non-essential business operations
Certain businesses are subject to curfews which limit their hours of operation
Limits on the capacity of a business that limit how many customers or clients it can serve
Bans on travel or restrictions on the ability to transport goods or service by a business

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

Revenue Decline

It is considered a significant decrease in gross revenue if a business has:

The gross receipts of any calendar quarter in 2020 are less than half the gross receipts of the same quarter in 2019.
The gross revenues for any calendar-quarter in 2021 will be less than 80 percent of the gross revenue in 2019 for that same quarter.

Gross receipts are the total 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
Dividends, rents, and royalties, as well as interest, are all examples of annuities.
Gifts, donations, and contributions Erc – Employee Retention Credit
Membership fees and dues
Gross revenue from businesses or trades

To compare gross revenues for different quarters an employer can use:

The same method of account (cash, accrual or accrual) was used in filing the federal income tax return.
It will use the same calendar year quarters for 2019/2021 as it did to file its federal Employment Tax Returns (Form 941).
The same sources as reported in the federal tax return for 2019

Recovery Startup Business

A recovery startup business is a business that:

You must have started your business after the 15th of February 2020
Have average annual gross income of no more than $1 million over the three-year period ending the tax year before the calendar quarter in which the credit is determined

The ERC is available to a recovery startup business regardless of whether or not it meets the criteria for business suspension or revenue decrease. There are certain limitations and rules that apply to recovery startups businesses.

The maximum credit per quarter will be $50,000
The credit will only be available to employees who have paid wages in the third quarter and fourth of 2021
The credit has a cap of 250 million dollars for all startup businesses that are eligible.

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Credit Amount Calculation

ERCs have different rules and amounts depending on the length of time and type of employer. The main factors that affect the ERC are:

How much of the employer’s income was affected in 2019 by the pandemic.
How many employees the employer had in 2019 or 2020/2021, and whether they worked or not during the pandemic
How much did the employer pay each employee in health insurance?

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 examine the forms to determine if the employer is eligible and then pay him the money. 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 not be available indefinitely. 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. Erc – Employee Retention Credit

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

Time Period

In 2020, 2021, & 2022, different laws were passed to introduce, amend, and terminate the ERC. Credit amounts vary depending on when they are claimed. 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 of eligible employees will affect the calculation and definition of health insurance and qualified wages. The size of an employer depends on its number of FTEs and the time period. The table below summarizes all the rules and thresholds that determine an employer’s size.

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

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

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

Qualified Wages & Health Insurance Costs

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 wage also includes the cost of health insurance for eligible employees. This may include premiums, deductibles, co-pays, or co-insurance.

The definition and calculation of qualified wages and health insurance costs depend on the employer size and the time period. Table 1 summarizes and gives examples of rules in various scenarios. Erc – Employee Retention Credit

Employer Size	Time Period	Qualified Wages and Health Insurance Costs	Example
Small	2020	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not	An employer with 80 FTEs in 2019 paid $8,000 in wages and $2,000 in health insurance costs to an employee in 2020. The employer had a revenue decline of more than 50% in Q2 2020. The qualified wages and health insurance costs for Q2 2020 are $10,000.
Small	Q1-Q3 2021	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not	An employer with 400 FTEs in 2019 paid $12,000 in wages and $3,000 in health insurance costs to an employee in Q1 2021. The employer had a revenue decline of more than 20% in Q1 2021. The qualified wages and health insurance costs for Q1 2021 are $15,000.
Small	Q3-Q4 2021 (Recovery Startup Business)	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not (subject to a $50,000 cap per quarter)	A recovery startup business that began operations in March 2020 paid $9,000 in wages and $1,000 in health insurance costs to an employee in Q3 2021. The business had average annual gross receipts of $800,000. The qualified wages and health insurance costs for Q3 2021 are $10,000.
Small	Q4 2021 – Q3 2022 (Severely Financially Distressed Employer)	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not	An employer with 600 FTEs in Q2 2019 paid $11,000 in wages and $4,000 in health insurance costs to an employee in Q4 2021. The employer had a revenue decline of more than 90% in Q4 2021. The qualified wages and health insurance costs for Q4 2021 are $15,000.
Large	2020	Wages and health insurance costs paid to an employee for the time that the employee did not work (up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship)	An employer with 120 FTEs in 2019 paid $10,000 in wages and $2,000 in health insurance costs to an employee who worked full-time (40 hours per week) in 2020. The employer had a business suspension due to a government order in April 2020. The employee did not work for two weeks in April 2020. The qualified wages and health insurance costs for April 2020 are $2,308 ($10,000 x2/52+$2,000 x2/52).
Large	Q1-Q3 2021	Wages and health insurance costs paid to an employee for the time that the employee did not work (up to the amount that the employee would have been paid for working an equivalent duration during the 90 days immediately preceding the period of economic hardship)	An employer with 550 FTEs in 2019 paid $15,000 in wages and $5,000 in health insurance costs to an employee who worked full-time (40 hours per week) in Q1 2021. The employer had a revenue decline of more than 20% in Q1 2021. The employee did not work for three weeks in Q1 2021. The qualified wages and health insurance costs for Q1 2021 are $5,769 ($15,000 x3/13+$5,000 x3/13).
Large	Q3-Q4 2021 (Severely Financially Distressed Employer)	All wages and health insurance costs paid to any employee, regardless of whether the employee worked or not (only if the employer had a revenue decline of more than 90%. Otherwise, the same rules as Q1-Q32021 apply.)	An employer with 700 FTEs in Q4 2019 paid $12,000 in wages and $6,000 in health insurance costs to an employee who worked full-time (40 hours per week) in Q4 2021. The employer had a revenue decline of more than 90% in Q4 2021. The qualified wages and health insurance costs

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Claim and Report the Credit

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 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 reports the quarterly federal tax liability of an employer, including income tax and Medicare taxes. Form 941 allows employers to claim ERCs for current or future quarterly periods. The employer can use Form 941 to:

ERC – Reduce the amount the employer is required to pay in taxes.
Employers can request a payment in advance if their ERC is higher than the taxes they are required to pay. Erc – Employee Retention Credit
Any excess credit can be carried forward to the next quarter

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

Use the most recent version of Form 941, which reflects any changes or updates to the ERC laws.
The IRS has provided worksheets to help you calculate the ERC.
Use Line 11c to report the qualified wages and health insurance costs 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.
Report any credit balance that may be carried forward into the next quarter using Line 25
Sign and date Form 941, and include any supporting documents and schedules.

Tips and resources on how to complete Form 941 include:

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.
For clarifications or help, you can contact the IRS.

Form 941-X

Forms 941-X are used to rectify errors or make adjustments to Forms 941 previously submitted. Form 941-X allows employers to claim ERC retroactively. The employer may use Form 941 to: Erc – Employee Retention Credit

Claim a credit or refund for the taxes you overpaid by claiming ERC
Report additional qualified wage and health insurance expenses paid to eligible employees which were not reported in 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 latest Form 941-X which reflects all the updates and changes made to the ERC by new laws.
Follow the instructions and worksheets provided by the IRS for calculating and reporting the ERC
Use Part 2 to indicate which lines of Form 941 are being corrected or adjusted
Use Part 3 for explaining why form 941 has been corrected or adjusted
Use Line 24 to declare any additional qualified wages or health insurance costs paid by eligible employees.
Use Line 25 for any additional credit claimed each quarter.
You can use Line 26 to request a refund or credit due to claiming ERC.
Attach any supporting documents and schedules to Form 941-X.

Some tips and resources for filling out Form 941-X are:

Filter a separate Form 941/X for every quarter that needs to be corrected or adjusted Erc – Employee Retention Credit
File Form 941-X as soon as possible after discovering an error or making an 0adjustment on Form 941
Visit the IRS website to get the latest updates, FAQs, and guidance regarding Form 941-X, the ERC, and other forms.
You can also contact a tax expert or the IRS for clarification or additional assistance.

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. The employer can still file Form 941 if they have deposited their taxes on time. After the end quarter. For example, Q1 2020 (January to March) requires that Form 941 be returned by May 10, 2021. Erc – Employee Retention Credit

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 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 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 (ERC) Credit is an important tax benefit which can help employers that were affected by COVID-19 to retain their employees, and lessen the impact the pandemic had on their organizations or businesses.

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. The ERC credit can be claimed with IRS Forms 941 or 941X by reporting to them the qualified health insurance and wages costs as well as the amount claimed each quarter.

Do not miss out on this opportunity if you’re an employer that meets the ERC eligibility criteria. The ERC is not available forever and has a deadline and a statute of limitations for claiming it. Use the resources and tips provided in this article to ensure that you fill out your forms correctly and avoid common mistakes. 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 you retain your workers, maintain your cash flow, and recover from the pandemic. This article should have helped you learn more about ERCs and how to apply for them. We thank you for reading. Please stay safe.

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Erc – Employee Retention Credit

What is ERC?

Employee Retention Credit – This tax credit is available to employers for keeping their employees employed during the COVID-19 epidemic.

It was created by the CARES Act in March 2020 and was later amended and extended by the CAA (Consolidated Appropriations Act) in December 2020, and the ARPA (American Rescue Plan Act of 2021) in March 2021

Who is eligible for the ERC?

The ERC is not available to everyone. Employers only eligible for the ERC are those who have retained and paid wages to their employees between March 14, 2020 and Dec 31, 2021.

Below are some details about eligibility.

A government-issued order temporarily or permanently suspended the organization or business due to COVID-19.
The gross receipts they had for a calendar-quarter in 2020, 2021 or both were less than 10% of their gross receipts during the same quarter last year.
The business is a startup that started operations after February 15, 2020, and has an average gross revenue of less than $1 million.

How much is ERC?

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. 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 deadline for filing the ERC forms is different for Form 941 and Form 941-X.

Form 941 deadline is typically the last of the month following each quarter. In contrast, the deadline to submit Form 941 X is generally set at three years since the date of the original 941. It is also possible to choose a date of two years following the date on which the tax was paid.