How Employee Retention Credit Magnet

COVID-19’s pandemic caused unimaginable hardships to many organizations and businesses around the globe. Lockdowns, social distance, health and security measures and lockdowns have caused many employers to face reduced revenue, increased expenses and disruptions in their operations.

In order to help employers retain employees and offer them health benefits in this tough time, the U.S. Government has introduced the Employee retention credit (ERC), which is a tax credit refundable that can be used by eligible employers to offset some payroll costs.

The ERC, which was originally enacted in 2020 by the CARES Act, was extended and modified later by subsequent legislation in both 2021 & 2023.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

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 was created to encourage employers in crisis to keep workers on their payrolls and provide them health insurance.

The Main Features and Benefits

The credit is equal to a percentage of qualified wages and health insurance costs paid to eligible employees, up to a certain limit per employee per quarter.
The percentage and the limit vary depending on the time period for which the credit is claimed. For 2020, the percentage is 50%, and the limit is $5,000 per employee for the entire year. For 2021, the percentage is 70%, and the limit is $7,000 per employee per quarter. 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. How Employee Retention Credit Magnet
The credit will be fully refundable if its amount exceeds that of the employer’s payroll taxes.
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 also request an advance payment of the credit by filing Form 7200.

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Eligibility Criteria

To qualify as an employer for the Employee retention Credit (ERC), you must meet at least one of the two criteria below:

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 gross receipts of the employer for a calendar-quarter in 2020 or 2020 were less than 50 percent (for 2020), or 80 percent (for 2021), of their gross receipts during the same calendar quarter in 2019.

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 be eligible for ERC regardless of their revenue decline or suspension.

Business Suspension

A business or organization is considered fully or partially suspended by a government order if:

The order limits travel, commerce or group meetings as a result of COVID-19
The order affects the operations of the business or organization
Order applies to any calendar year in 2020 or 21

Some examples of orders from the government that could cause a business to be suspended are:

Stay-at-home orders that restrict non-essential businesses 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 restrictions or travel bans that limit the ability of businesses to transport products or services

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

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 magnitude and impact of the order upon the revenue and expenses of a business

Revenue Drop

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

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 of any quarter in calendar 2021 were below 80% of the gross receipts in the same quarter for 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 include the following:

Sales of Goods and Services
Interest, dividends rents royalties and annuities
Contributions, gifts and grants How Employee Retention Credit Magnet
Membership dues
Gross income from trades or businesses

Employers must use the following formulas to calculate gross receipts and compare them between quarters.

The same method for accounting (cash-based or accrual-based) that was used to file the federal income Tax return for 2019
The same quarters in the calendar year as those used for the federal employment tax returns (Form 941) filed by 2019 and 2020/2021
The same sources as reported in the federal tax return for 2019

Recovery Startup Business

A recovery startup is a business:

Begun carrying on any business after February 15th, 2020
Average annual gross receipts not exceeding $1 million during the three-year period ending on the tax year immediately preceding the calendar quarterly for which the credit will be 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.

Maximum credit per quarter: $50,000
Only wages paid during the third and fourth quarters in 2021 are eligible for this credit
Credits for recovery startups are subject to a maximum of $250 million.

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Credit Amount and Calculation

ERC amounts and rules vary for different time periods and employers. The ERC is affected primarily by:

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
What number of employees did the employer have in 2019 and 2020/2021?
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 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 review the forms and pay the money back to the employer. The employer could use this money to pay health insurance for employees or to get refunds and credits for payroll taxes.

The ERC is not available forever. The ERC will expire in September 2022. Employers must claim their ERC before they expire or become unavailable. The employer should also make sure to not waste the money. How Employee Retention Credit Magnet

The following information provides more details on the ERC credit and how it is calculated.

Time Period

The ERC has been introduced, modified, and terminated in different laws between 2020 and 2021. The credit amount varies depending on the time period for which it is claimed. The following table summarises the main features and differences between the ERCs of 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. 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 wage is the number of wages that are paid to employees who qualify during a time when a business has been suspended or revenue has decreased. The list of qualified wages includes tips, bonuses, commissions, and severance payments, as well as sick leave, family leave, severance, and other compensation. Qualified salaries also include the costs of providing health coverage to eligible workers, including premiums, copays, deductibles, and coinsurance.

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 following table provides a summary of the rules for different scenarios. How Employee Retention Credit Magnet

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

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

Form 941

Form 941 is used by employers to report their quarterly federal tax liabilities, which includes income tax, Medicare tax, and social security tax. The employer can also claim the ERC in Form 941 for future or current quarters. Form 941 can be used by the employer to:

ERC reduces taxes that employers have to deposit at the IRS.
You can ask for advance payment if your ERC exceeds the amount of taxes you have to pay. How Employee Retention Credit Magnet
You can carry forward any credit balance to subsequent quarters

The employer should:

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 qualified wages paid and health insurance premiums paid to eligible employees
Use Line 13d when reporting the credit for each quarter.
Use Line 13f for any advance payment received from IRS.
Use Line 24 to request a credit advance if necessary
Use Line 25 to report any credit excess that can be carried over to the next quarter.
Sign and date Form 941, attaching any supporting documents, schedules, or schedules.

Some tips and resources for filling out Form 941 are:

Use electronic filing (e-file) or online services to submit Form 941 faster and more securely
Check the IRS website for updates, FAQs, and guidance on Form 941 and the ERC
If you need clarification or assistance, contact the IRS or an accountant.

Form 941-X

Form 941-X is used to correct errors or make adjustments on a previously filed Form 941. Form 941-X allows employers to claim ERC retroactively. Form 941-X can be used by the employer to: How Employee Retention Credit Magnet

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.

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

Use the latest version of Form 941-X that reflects the changes and updates made by the laws that affect the ERC
Follow the instructions and worksheets provided by the IRS for calculating and reporting the ERC
Use Part 2 to indicate the lines on Form 941 that are being corrected or adapted.
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 claim any additional credit for each quarter.
Use Line 26 for any refunds or credits due to ERC claims.
Attach any supporting documents and schedules to Form 941-X.

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

Fill out a separate form 941-X per quarter being corrected or recalculated How Employee Retention Credit Magnet
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.
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, for Q1 2021 (January-March), Form 941 is due by April 30, 2021. However, if an employer made timely deposits of all taxes due for a quarter, it can file Form 941 by the 10th day of the second month. The end of the quarter. For example, for Q1 2021 (January-March), Form 941 is due by May 10, 2021, How Employee Retention Credit Magnet

The deadline for submitting Form 941X depends on the time period. It is generally three or two years, depending on the date when the original Form 941 has been filed. 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 employers filed Forms 941 and paid taxes on June 15, 2019, the deadline is 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 (Eligible Employees Credit) is a tax credit that can vary depending on the time frame, the number and type of employees employed, and the amount paid in wages and insurance to employees eligible for the credit. The ERC may be claimed through IRS Forms 941 and 941X, which require the employer to report the qualified wages paid and the health insurance expenses incurred by each employee.

Don’t miss this chance to get a tax break if your employer meets the ERC criteria. The ERC will not be available indefinitely, and it has a set deadline and statute of limitations. The forms should be filed as soon as you can. You can use the resources and advice provided in this post to avoid common mistakes and fill them out correctly. You can contact the IRS for help or clarification, or you could consult a tax expert.

The ERC can make a big difference for your business or organization and your 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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How Employee Retention Credit Magnet

What is the 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 was passed in March 2020. It was amended and extended in December 2020 by the CAA Act (Consolidated Appropriations Act) and in March 2021 by the ARPA Act (American Rescue Plan Act of 2021).

Can everyone apply for ERC?

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

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.
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.
These businesses are recovery startups that have been in operation since February 15, 2020. They also generate gross revenues of no more than $1 million on average per year.

How much is the ERC?

The amount that an organization or company receives in ERC will depend on many factors.

These factors include time, the number of employees and the amount of wages that qualify. They also include health insurance costs for eligible employees. If you want a more detailed explanation, read the above article.

How to claim 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.

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

When is ERC’s deadline?

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

The last day to submit Form 941 for each quarter is the last calendar month. For Form 941X, the deadline is three years following the date on which the original form 941 was filed. It can be as late as two years after you paid the tax, but the later date is the preferred date.