Is Employee Retention Credit Taxable In Kansas

The COVID-19 pandemic has caused unprecedented challenges and hardships for many businesses and organizations around 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.

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

The ERC is a program that was introduced by the CARES Act of 2020. Subsequent legislation was passed in 2021 and in 2023 to extend and modify it. 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 Employee Retention Credit? Is Employee Retention Credit Taxable In Kansas

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 is designed to encourage employers to retain their employees and offer them health benefits in times of crisis.

Main Features & Benefits

Credits are equal in percentage to the wages and insurance costs that employees who qualify for them have paid, but there is a maximum per employee.
The percentage and the maximum credit vary depending on how long the credit can be claimed. For 2020, the percent is 50%, and the limit is $5,000 for each employee per year. For 2021, the percentage is 70%, and the limit is $7,000 per employee per quarter. For 2023, the percentage is 70% for the first two quarters and 40% for the last two quarters, and the limit is $10,000 per employee per quarter. Is Employee Retention Credit Taxable In Kansas
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. For 2023 only, employers that are classified as recovery startup business can claim the credit.
Credits may be obtained by filing a revised employment tax form (Form 941X) or reducing employment deposit amounts in anticipation. By submitting Form 7020, employers can request an early payment of their credit.

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

Eligibility Criteria

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

A government order suspended the employer’s organization or business in full or part due to COVID-19 for a calendar quarter of 2020 or 2021
The employer’s gross 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.

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 qualify for ERC despite business suspensions or revenue decreases.

Business Suspension

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

The order limits travel, commerce or group meetings as a result of COVID-19
The order will affect the operation of the business or the organization
The order applies to all calendar quarters in 2020 and 2021

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

Stay-at-home orders restricting non-essential business operations
Curfews that limit the hours of operation for certain businesses
Capacity limits that reduce the number of customers or clients that can be served by a business
Travel bans or restrictions that affect the ability of a business to transport goods or services

To determine if a business was fully or partially suspended by a government order, an employer must consider:

The order’s nature, scope, and impact on the business
The duration, frequency of the orders and their alignment with the four quarters calendar.
The impact of an order on revenue and expenses

Revenue Drop

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 receipts from any calendar quarter during 2021 are less than 80% compared to the same quarter’s gross receipts from 2019.

Gross receipts are the total sums that an organization or a business has accrued or received from all its sources in a given accounting year, without any deductions. Gross receipts are:

Sales of Goods and Services
Dividends (rents), royalties and interest
Gifts, donations, and contributions Is Employee Retention Credit Taxable In Kansas
Dues and fees for membership
Gross profits from trades and businesses

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

The same method for accounting (cash-based or accrual-based) that was used to file the federal income Tax return for 2019
Use the same calendar quarters as it did for its federal employment tax return (Form 941 ) for 2019 and 2021/2022
The same sources as reported in the federal tax return for 2019

Recovery Startup Business

A recovery startup is a business:

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

If a business is in recovery, it can still qualify for ERC even if the business has been suspended or its revenue has declined. Recovery Startup Businesses are still subject to some restrictions and special rules.

The maximum credit per quarter will be $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.

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

Credit Amount and Calculation

ERCs have different rules and amounts depending on the length of time and type of employer. The ERC is affected primarily by:

How much of the employer’s income was affected in 2019 by the pandemic.
The number of employees that the employer has in 2019 or 2020/2021 and whether or not they worked during the pandemic
How much the employer paid to each employee and their health insurance during the pandemic

To receive the ERC, employers must submit forms to the IRS. The forms must include the total amount paid by the employer to employees, their health insurance coverage and the reasons why they are eligible for the ERC. The IRS will then check the forms before giving the money to employers. The employer may use the money in order to pay their employees’ health insurance premiums, or get refunds for their payroll tax.

The ERC will no longer be available. It started in March 2020 and will end in September 2022. The employer has to claim the ERC before it expires or becomes unavailable. Employers must also use the money well and not waste it. Is Employee Retention Credit Taxable In Kansas

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

Time Period

The ERC was implemented, amended, or terminated by various laws in 2020. The amount of the credit varies according to the time period that it is applied for. The following table summarizes and compares the ERC’s main features for each 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 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 include wages paid to eligible workers during a business suspension or revenue decrease. Other forms of compensation are also included in qualified wages, such as tips, bonuses and commissions. Qualified wages also include the cost of providing health insurance to eligible employees, such as premiums, deductibles, co-pays, and co-insurance.

The calculation of qualified wages, health insurance costs and employer size depends on the time period. The following table summarizes the rules and examples for different scenarios: Is Employee Retention Credit Taxable In Kansas

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 < <

Claiming and Reporting 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 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. 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. Is Employee Retention Credit Taxable In Kansas
Carry forward any excess credits to future quarters

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

Use the latest version of Form 941 that reflects the changes and updates made by the laws that affect the ERC
Use the IRS worksheets and instructions to calculate and report the ERC
Use Line 11c for the amount of qualified wages and health benefits paid to eligible employees
Use Line 13d when reporting the credit for each quarter.
Use Line 13f to declare any advance payments received from the IRS.
Use Line 24 if you require an advance credit payment.
Line 25 is the place to enter any excess credit which can be carried to a subsequent quarter.
Sign Form 941, date it and attach any documents or schedules that you wish to include.

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
Visit the IRS website to get the latest updates, FAQs, and guidance regarding Form 941 and ERC.
If you need clarification or assistance, contact the IRS or an accountant.

Form 941-X

Form 941-X allows you to correct mistakes or make adjustments in Form 941 that has already been filed. Form 941 X also allows for the employer to claim ERC retroactively. The employer can use Form 941-X to: Is Employee Retention Credit Taxable In Kansas

Claim your refund or credit due to overpaid taxes by claiming the ERC
Report additional qualified wages and health insurance costs paid to eligible employees that were not reported on Form 941
Correct any mistakes or omissions made on Form 941 that affect the amount of credit claimed

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

Use the latest Form 941-X which reflects all the updates and changes made to the ERC by new laws.
Use the IRS worksheets and instructions to calculate and report the ERC
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
Line 24 is used to report additional wages and health insurance premiums paid to eligible employees.
Use Line 25 to report any additional amount of credit claimed for each quarter
Use Line 26 for any refunds or credits due to ERC claims.
Sign the form 941-X, date it and include any documents or schedules that you wish to attach.

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

File a separate Form 941-X for each quarter that is being corrected or adjusted Is Employee Retention Credit Taxable In Kansas
File Form 941-X as soon as possible after discovering an error or making an 0adjustment on Form 941
Updates, FAQs, and guidance about Form 941X and ERC can be found on the IRS website.
Need clarification? Contact an IRS agent or tax professional.

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 is due by 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. The end of the quarter. For Q1 2021 (January-March), form 941 must be submitted by May 10, 2020, Is Employee Retention Credit Taxable In Kansas

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), 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

Employee Retention Tax Credit (ERC), is a valuable financial benefit that helps employers to keep their employees employed and reduces the impact COVID-19 has on their organization or business.

The ERC (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. You can claim the ERC by submitting Form 941 to the IRS. This form will ask you for the number of employees, the amount paid in qualified wages and insurance costs each quarter, and how much credit is being claimed.

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. Use the resources and tips provided in this article to ensure that you fill out your forms correctly and avoid common mistakes. For clarifications or help, you can always contact an IRS agent or tax professional.

ERCs can be a huge help to your organization or business and its employees. It will help you to keep your employees, maintain a healthy cash flow, as well as recover from pandemic. This article is intended to help you better understand the ERC, and how it can be claimed. Thank you for reading, and stay safe.

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

Is Employee Retention Credit Taxable In Kansas

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 created the American Rescue Plan Act of 2021 in March 2021. Later, the CAA (Consolidated Appropriations Act), in December 2020, was amended and expanded by ARPA (American Rescue Plan Act of 2021), in March 2021.

Can everyone apply for ERC?

ERC eligibility is not universal. 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.

You can read more about the criteria here. Here are some highlights.

A government order imposed a suspension (full or partial) on the business or organization due to COVID-19.
Their gross revenues for a quarter calendar in 2020 or in 2021 were lower than a percentage compared to their gross revenues for the same period in 2019.
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 of ERC that a company will receive depends on a number of factors.

Some of these include the time period and number of employees. Others are the amount paid in qualified wages or health insurance to eligible employees. The article above provides a detailed explanation on how ERC is calculated.

How do I claim my ERC?

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

The employer must provide a quarterly report detailing the wages, health insurance and other costs that are eligible for credit as well as the amount claimed.

When is the Deadline for Filing the ERC Forms?

The deadlines of Form 941, Form 941X and ERC 941 are different.

The last day to submit Form 941 for each quarter is the last calendar month. 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.