Erc Employee Retention Credit Application

COVID-19 has caused hardships and unprecedented challenges for businesses and organizations all over the world. Many employers have experienced reduced revenues, higher expenses, and disruptions to their operations because of lockdowns, distancing from social media, and health-and-safety measures.

To help employers 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The ERC, which was originally enacted in 2020 by the CARES Act, was extended and modified later by subsequent legislation in both 2021 & 2023.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 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 Application

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 established by the CARES Act of 2020 and extended and modified in subsequent legislations in 2021 and in 2023. The ERC encourages employers to maintain their workers and to provide health benefits to them during the crisis.

Main Features & Benefits

The credit is a percentage of wages and health insurance premiums paid by eligible employees. There are limits per employee, per quarter.
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. In 2021, 70% of the employees will be eligible for the maximum. The limit per employee is $7,000. For 2023, the percentage will be 70% for the two first quarters and 40% for the two last quarters. The limit per employee per quarter is $10,000. Erc Employee Retention Credit Application
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.
The credit may be claimed by filing a modified employment tax return (941-X), or by reducing the employment tax deposits to prepare for the credit. Employers can request an advance payment by submitting Form 7200.

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Eligibility Criteria

Employers who wish to qualify for Employee Retention Credit (ERC) must meet 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.

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 may qualify for ERC regardless of revenue or business suspension.

Business Suspension

A government order can either suspend or fully suspend a company or organization if the following conditions are met:

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

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

Orders to stay at home that prevent non-essential companies from operating
Curfews are restrictions on the hours that certain businesses can operate
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

To determine whether an employer’s business was suspended fully or partially by a government directive, the employer must:

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

Revenue Drop

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 receipts for any calendar quarter in 2021 were less than 80% of its gross receipts for the same quarter in 2019

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 can include:

Sales of Goods and Services
Rents, dividends, and annuities are examples of income streams that include interest, dividends.
Gifts, donations, and contributions Erc Employee Retention Credit Application
Membership fees and dues
Gross business income

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

The same method of account (cash, accrual or accrual) was used in filing the federal income tax return.
The same calendar year quarters that it used to file its federal employment tax returns (Form 941) for 2019 and 2020/2021
It is the same income sources that were reported on the federal income tax returns for 2019.

Recovery Startup Business

Recovery startup businesses are those 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

A recovery startup business can qualify for the ERC regardless of whether it meets the criteria of business suspension or revenue decline. There are certain limitations and rules that apply to recovery startups businesses.

The maximum credit amount per quarter is $50,000
The credit is only applicable to wages paid for the third and fourth quarters of 2021
Credits for recovery startups are subject to a maximum of $250 million.

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Credit Amounts Calculation

There are different ERC rules and amounts for different employers and periods of time. The main factors that affect the ERC are:

How much an employer’s company was affected by the pandemic.
Employer’s number of employees in 2019 or 2021, and whether the employee worked or not.
What the employer paid each employee for their health insurance and during the pandemic

To receive the ERC, employers must submit forms 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 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 not be available indefinitely. The ERC began in March 2020, and it will end in September 2022. The employer must claim the ERC prior to its expiration or becoming unavailable. The employer also has to use the money wisely and not waste it. Erc Employee Retention Credit Application

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

Time Period

The ERC has been introduced, modified, and terminated in different laws between 2020 and 2021. The amount of credit depends on the time frame for which it’s claimed. The table below summarizes key differences and features of the ERCs for each time period:

Time Period	Law	Eligible Employers	Credit Rate	Qualified Wages
2020	CARES Act	Employers with business suspension or revenue decline of more than 50%	50% of qualified wages up to $10,000 per employee per year	Wages paid from March 13 to December 31, 2020
Q1-Q3 2021	CAA and ARPA	Employers with business suspension or revenue decline of more than 20%	70% of qualified wages up to $10,000 per employee per quarter	Wages paid from January 1 to September 30, 2021
Q3-Q4 2021 (Recovery Startup Business)	ARPA	Recovery startup businesses with average annual gross receipts of no more than $1 million,	70% of qualified wages up to $10,000 per employee per quarter (subject to a $50,000 cap per quarter),	Wages paid from July 1 to December 31, 2021,
Q4 2021 – Q3 2022 (Severely Financially Distressed Employer)	ARPA and IIJA	Employers with a revenue decline of more than 90%	70% of qualified wages up to $10,000 per employee per quarter	Wages paid from October 1, 2021, to September 30, 2022

The Number of Employees

The number of eligible employees will affect the calculation and definition of health insurance and qualified wages. Employers are classified as small or large employers based on their number of full-time workers (FTEs), and the period in which they were employed. The following table summarizes rules and thresholds to determine employer size.

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

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

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

Qualified Wages, Health Insurance Costs

Qualified Wages are wages that eligible employees receive during periods of suspension or decline in revenue. Qualified wage includes tips and bonuses, as well as severance, pays, sick leave payments, family leave payments and other types of compensation. Qualified wages also include the cost of providing health insurance to eligible employees, such as premiums, deductibles, co-pays, and co-insurance.

The employer size, the time period and the calculation of the qualified wage and health insurance cost will affect the calculation. The table below summarizes rules and examples in different scenarios. Erc Employee Retention Credit Application

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

For the Internal Revenue Service to grant the Employee Retention credit (ERC), employers must file either a federal tax return for employment (Form 941), or an amended tax return for employment (Form941-X). The employer is required to report the qualified wages, health insurance costs and credit claimed by 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 also allows the employer to claim the ERC for current or future quarters. Form 941 can be used by the employer to:

ERC reduces taxes that employers have to deposit at the IRS.
If the ERC is greater than the tax that the employer must deposit, you can request an advance payment. Erc Employee Retention Credit Application
You can carry forward any credit balance to subsequent quarters

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

Use the latest Form 941, 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 line 11c to report qualified wages paid and health insurance premiums paid to eligible employees
Use Line 13d for the credit claim amount per quarter
Use Line 13f to declare any advance payments received from the IRS.
Use Line 24 to request a credit advance if necessary
Use Line 25 to report any excess credit that can be carried forward to subsequent quarters
Sign and date Form 941, and include any supporting documents and schedules.

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

Form 941 can be submitted faster and more securely by using electronic filing (efile) or online services
Check the IRS website for updates, FAQs, and guidance on Form 941 and the ERC
Contact the IRS or a tax professional for assistance or clarification if needed

Form 941-X

The Form 941 X is used for corrections and adjustments to a Form 941. 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: Erc Employee Retention Credit Application

Claim a refund or credit for overpaid taxes due to 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 latest Form 941-X which reflects all the updates and changes made to the ERC by new laws.
Follow the IRS instructions and worksheets for calculating the ERC and reporting it.
Use the Part 2 to indicate on which lines you are correcting or adjusting Form 941
Use Part 3 to explain why Form 941 is being corrected or adjusted
Use Line 24 to report any additional qualified wages and health insurance costs paid to eligible employees
Line 25 should be used to declare any additional amount claimed as a credit each quarter
Use Line 26 to report any refund or credit requested due to claiming the ERC
Sign and date Form 941, and attach any supporting documentation or schedules

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

File a separate Form 941-X for each quarter that is being corrected or adjusted Erc Employee Retention Credit Application
Fill out Form 941-X immediately after you find an error in Form 941
Visit the IRS website to get the latest updates, FAQs, and guidance regarding Form 941-X, the ERC, and other forms.
If you need clarification or assistance, contact the IRS or an accountant.

Deadline and Statute of Limitations

Form 941 must be filed by the last date of the month that follows the end each quarter. For example, Q1 2020 (January-March) Form 941 will be due on April 30, 2021. In the event that an employer has deposited the taxes due on time for a particular quarter, Form 941 can be filed by the 10th date of the following month. After the end of the quarterly period. Form 941 for the first quarter of 2021 (January – March) is due on May 10, 2021. Erc Employee Retention Credit Application

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 Q1 2020 (January – March), for example, Form 941 is due on April 30, 2020. If the employer has filed Forms 941 and paid tax by April 30th 2020, they have until April 30th 2023 to submit Form 941X. 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 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 that varies depending on the time period, the number of employees, and the amount of qualified wages and health insurance costs 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.

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. To avoid making common mistakes, you should fill out the forms correctly using the information and tips in this article. 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. You can use it to retain employees, keep your cash flowing, and recover after a pandemic. This article should have helped you learn more about ERCs and how to apply for them. Thank you for reading. Stay safe.

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Erc Employee Retention Credit Application

What is ERC?

Employee Retention Credit (ERC) is a tax incentive for employers that retained their employees on their payrolls 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).

Who is eligible for the ERC?

The ERC is not available to everyone. It is only available to employers who have retained employees and paid their wages to them between March 13, 2020, and December 31, 2021.

There are also criteria for eligibility; more details can be read above, but here are the highlights:

A government-issued order temporarily or permanently suspended the organization or business due to COVID-19.
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.

How much does the ERC cost?

The amount ERC received by a business or organization will depend upon several factors.

One of the factors is the length of time the company has been in business, the number and type of employees it has, the amount that qualifies as wages, or the health insurance premiums paid to employees who are eligible. You can read the article above for a more detailed explanation of how ERC is calculated.

How to claim your ERC?

To claim the ERC, an employer must file a federal employment tax reform or an adjusted employment tax return (Form 941-X) with the IRS.

Employers are required to report each quarter the total amount claimed as a credit and the wages and insurance premiums paid by eligible employees.

When is the deadline to file 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. Meanwhile, the deadline for Form 941-X is generally three years from the date that the original Form 941 was filled. This can also be up to two years, based on the date when the tax is paid.