How To Report Employee Retention Credit On 2023 1120S

COVID-19, the pandemic that has swept across the globe in recent years, has brought unprecedented challenges and hardships to businesses and organisations around. Due to lockdowns and social distancing as well as health and safety measures, many employers have seen their revenues and expenses drop, while operations are disrupted.

Employee Retention Credit is a refundable income tax credit available to eligible employers that helps them retain their employees while providing health benefits.

The ERC, which was originally enacted in 2020 by the CARES Act, was extended and modified later by subsequent legislation in both 2021 & 2023.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 To Report Employee Retention Credit On 2023 1120S

Employee Retention Credit is a tax credit that can be refunded to businesses and tax-exempt organizations who had employees affected by COVID-19. The ERC, created in 2020 by the CARES Act, was then extended and modified through subsequent legislation in both 2021-2023. The ERC is designed to encourage employers to retain their employees and offer them health benefits in times of crisis.

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 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. How To Report Employee Retention Credit On 2023 1120S
The credit will be fully refundable if its amount exceeds that of the employer’s payroll taxes.
Employers can claim this credit if they experienced a significant decrease in gross receipts due to an order from the government relating to COVID-19. 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 can also request an advance payment of the credit by filing Form 7200.

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

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 has suspended or halted the business or organization of an employer due to COVID-19 in a calendar year 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.

Additionally, there is an additional rule that only applies to startups who began operating on or after February 15, 2021, and have gross receipts totaling no more than $1.0 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 restricts commerce, travel or group meetings because of COVID-19
The order affects the operations of the business or organization
The order applies to all calendar quarters in 2020 and 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
Certain businesses have curfews that limit their hours of operations
Limits in capacity that restrict the number or clients that a business can serve
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 impact of an order on revenue and expenses

Revenue Decline

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

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

Sales of Goods and Services
Rents, dividends, and annuities are examples of income streams that include interest, dividends.
Contributions are gifts, donations and grants How To Report Employee Retention Credit On 2023 1120S
Dues and fees for membership
Gross profits from trades and businesses

To compare gross receipts between different quarters of the year, employers must use:

It should use the same method of accounting, either cash or accrual, that it used for its federal income tax returns for 2019.
Use the same calendar quarters as it did for its federal employment tax return (Form 941 ) for 2019 and 2021/2022
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:

Start any new business or occupation after February 15, 2019,
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. Recovery startup businesses are subject to certain restrictions and special rules.

The maximum amount of credit per quarter is $50,000
The credit can only be used for wages paid between the third and the fourth quarters of 2020
The credit is subject to an overall cap of $250 million for all recovery startup businesses

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

Credit Amounts and Calculation

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

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 each employee received from their employer and how they were covered by health insurance in the pandemic

To claim the ERC, the employer must fill out and submit a form to the IRS. The form must show the amount the employer paid for their employees’ health insurance, and how they qualified for the ERC. The IRS will review the forms and pay the money back to the employer. The employer can use the money to pay their employees and their health insurance or to get refunds or credits for their payroll taxes.

ERCs are not available forever. The ERC began in March 2020, and it will end in September 2022. The employer is required to claim ERCs before they expire, or are no longer available. Employers must also use the money well and not waste it. How To Report Employee Retention Credit On 2023 1120S

You can find more information below on ERC calculation and credit amount.

Time Period

In 2020, 2021, & 2022, different laws were passed to introduce, amend, and terminate the ERC. The credit amount varies depending on the time period for which it is 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 employees affects the definition and calculation of qualified wages and health insurance costs for eligible employees. The size of an employer depends on its number of FTEs and the time period. The following table summarizes the thresholds and rules for determining the employer size for each time 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)

Earnings and Costs of Health Insurance

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 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. This table summarises the rules and provides examples for various scenarios. How To Report Employee Retention Credit On 2023 1120S

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

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

Claim and Report the Credit

For an employer to claim the Employee retention credit (ERC), they must submit a federal employment return (Form 951) or a revised employment tax report (Form 941X) to the Internal Revenue Service. The employer will need to declare the qualified wages paid and the health insurance expenses paid for eligible employees. They must also report the credit claimed.

Form 941

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

ERC reduces the amount that employers must deposit with the IRS in order to pay taxes.
Employers can request a payment in advance if their ERC is higher than the taxes they are required to pay. How To Report Employee Retention Credit On 2023 1120S
Carry forward any excess credit 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.
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 for the credit claim amount per quarter
Use Line 13f to declare any advance payments received from the IRS.
Use Line 24 if you require an advance credit payment.
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 services (efile) and online services to submit the Form 941 faster, more securely
Updates, FAQs, and guidance about Form 941, the ERC, and other IRS forms can be found on the IRS website.
For clarifications or help, you can contact the IRS.

Form 941-X

Form 941-X is used to correct errors or make adjustments on a previously filed Form 941. The Form 941X allows the employer retroactively to claim ERC for previous quarters. The employer can use Form 941-X to: How To Report Employee Retention Credit On 2023 1120S

Claim refunds or credits for taxes overpaid due to the ERC
Report additional qualified wages paid and health insurance premiums paid to eligible workers that have not been reported on Form 941
You can correct any errors or omissions that may have affected the credit claimed amount on Form 941.

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

Use the latest version 941-X to reflect the updated laws and regulations that impact the ERC.
The IRS has provided worksheets to help you calculate 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 to declare any additional qualified wages or health insurance costs paid by eligible employees.
Use Line 25 to claim any additional credit for each quarter.
Use Line 26 to report any credit or refund due to the ERC claim.
Sign and date the Form 941 X and add any supporting documents or schedules.

Tips and resources on how to complete Form 941 X include:

Filter a separate Form 941/X for every quarter that needs to be corrected or adjusted How To Report Employee Retention Credit On 2023 1120S
You should fill out Form 941/X as quickly as possible after you have made an adjustment or discovered an error.
You can find updates, FAQs, and more information on the IRS site about the ERC and Form 941X.
For clarifications or help, you can contact the IRS.

Deadline and Statute of Limitations

The deadline to submit Form 941 is usually the last day in the month following each quarter. For example for Q1 (2021) (January – March), Form 941 should be submitted by April 30, 2019. 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. After the end of the quarterly period. For example, for Q1 2021 (January-March), Form 941 is due by May 10, 2021, How To Report Employee Retention Credit On 2023 1120S

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), the Form 941 must be filed by April 30th 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 on June 15, 2020, the deadline for filing Form 941-X is June 15, 2022.

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

Conclusion

The Employee Retention Credit (ERC) is a valuable tax benefit that can help employers who were affected by the COVID-19 pandemic keep their employees on the payroll and reduce the impact of the pandemic on their businesses or organizations.

The ERC can be claimed by filing Form 941 or Form 941-X with the IRS and reporting the qualified wages and costs of health insurance paid to eligible workers. The ERC can be claimed by filing Form 941 or Form 941-X with the IRS and reporting the qualified wages and health insurance costs and the amount of credit claimed for each quarter.

Don’t miss this chance to get a tax break if your employer meets the ERC criteria. The ERC cannot be claimed forever. There is a deadline to claim it and a statute that limits its use. To avoid making common mistakes, you should fill out the forms correctly using the information and tips in this article. You can also contact the IRS or a tax professional for assistance or clarification if needed.

The ERC is a great tool for both your business and employees. It will help you to keep your employees, maintain a healthy cash flow, as well as recover from pandemic. We hope that this article helped you to understand more about ERC and the claim process. Thank you for reading, and stay safe.

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

How To Report Employee Retention Credit On 2023 1120S

What is ERC?

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

The CARES Act, passed by Congress in March of this year, was amended in December of that year by the CAA Act. In March 2021, the ARPA Act (American Rescue Plan Act of 2021), was extended.

Can everyone apply for ERC?

ERC isn’t available to everyone. Only employers who paid wages and retained employees between March 13, 2019, and December 31, 2020, are eligible.

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

A government order has suspended the business or organization (wholly or partially) due to COVID-19.
The gross receipts of a calendar quarter for 2020 or 2021 were less than a percent of the gross receipts from a similar 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.

What is the ERC rate?

The amount of ERC that a company will receive depends on a number of 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. You can read the article above for a more detailed explanation of how ERC is calculated.

How to claim your ERC?

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

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 for Filing the ERC Forms?

The deadlines for filing Forms 941 and 941-X are different.

For Form 941 is generally the last day of the month following the end of each quarter. The deadline for Forms 941-X, however, is usually three years after the date the original Form was completed. It is also possible to choose a date of two years following the date on which the tax was paid.