Kentucky Employee Retention Credit Subtraction

COVID-19 has caused hardships and unprecedented challenges for businesses and organizations all over the world. Many employers have faced reduced revenues, increased expenses, and disrupted operations due to lockdowns, social distancing, and health and safety measures.

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 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. The ERC will be explained in this article, along with how it works and the different eligibility criteria and time periods for which it can be claimed.

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? Kentucky Employee Retention Credit Subtraction

Employee Retention Tax Credit (ERC), is a refundable tax credit for organizations and businesses with employees who have been affected by COVID-19. The ERC has been created by the CARES Act for 2020. It was further extended and modified with subsequent legislation in 2021, 2023. The ERC aims to encourage employers to keep their workers on the payroll and provide them with health benefits during the 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 credit amount and percentage vary according to the time period in which it 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. 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. Kentucky Employee Retention Credit Subtraction
The credit is fully refundable. If the amount of credit exceeds an employer’s liability for payroll tax, the excess will then be paid back to the employer.
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. Alternatively, for 2023 only, employers who are considered recovery startup businesses can also claim the credit.
The credit can be claimed by filing an amended employment tax return (Form 941-X) or by reducing employment tax deposits in anticipation of the credit. Employers can request an advance payment by submitting Form 7200.

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

Eligibility Criteria

To qualify for Employee Retention credit (ERC), employers must meet either of 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
Gross receipts of an employer for a quarter calendar in 2020 or in 2021 are less than half (for 2020) and 80% (for 2021) their gross receipts from the same period in 2019.

There is also a special rule that applies to recovery startups, which are businesses that started operations after February 15th 2020 with gross receipts no higher than $1,000,000 on average. These businesses are eligible for the ERC, regardless of whether their business has been suspended or if revenue has declined.

Business Suspension

A government order will either fully or partially suspend an organization or business if:

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

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

Stay-at-home orders prohibiting the operation of non-essential businesses
Curfews that limit the hours of operation for certain businesses
Limits on the capacity of a business that limit how many customers or clients it can serve
Travel restrictions or bans that impact the ability of an organization to transport goods and 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 and magnitude of the order to the business’s revenues and costs

Revenue Decline

It is considered that a business or organization has experienced a significant drop in gross receipts when:

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

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 & services
Dividends (rents), royalties and interest
Contributions, gifts, grants, and donations Kentucky Employee Retention Credit Subtraction
Membership fees and dues
Gross income from trades or 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.
For 2019 and 2020/2021, the same quarters of the calendar year that were used for filing federal employment tax returns on Form 941.
It is the same income sources that were reported on the federal income tax returns for 2019.

Recovery Startup Business

A startup that is in recovery can be defined as

Begun carrying on any business after February 15th, 2020
Has average annual gross receipts of no more than $1 million for the three-tax-year period ending with the tax year that precedes the calendar quarter for 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 per quarter will be $50,000
The credit is only applicable to wages paid for the third and fourth quarters of 2021
The maximum credit available for startup businesses is $250 million.

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Credit Amount Calculation

ERCs have different rules and amounts depending on the length of time and type of employer. The ERC’s main influences are:

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

The employer has to fill out some forms and send them to the IRS to claim the ERC. The employer must provide proof of how much they paid their employees for health insurance as well as the ERC. The IRS will examine the forms to determine if the employer is eligible and then pay him the money. The money can be used by the employer to pay for health insurance, to pay employees, or refunds on payroll taxes.

The ERC is not available forever. 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 has to spend the money efficiently and not waste. Kentucky Employee Retention Credit Subtraction

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

Time Period

The ERC was introduced, amended, and terminated by different laws in 2020, 2021, and 2022. The amount of credit depends on the time frame for which it’s 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 employed affects how wages are calculated and defined, as well as the health insurance premiums for eligible employees. According to the time frame and number of full-time equivalents (FTEs), an employer can be classified as a small employer or large employer. 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)

Qualified Wages and Health Insurance Costs

Qualified wages are wages paid to eligible employees during a period of business suspension or revenue decline. 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 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. This table summarises the rules and provides examples for various scenarios. Kentucky Employee Retention Credit Subtraction

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 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 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 to report the employer’s quarterly federal tax liability, including income tax, social security tax, and Medicare tax. The employer can also claim the ERC in Form 941 for future or current quarters. The employer can use Form 941 to:

Reduce the amount of taxes that the employer has to deposit with the IRS by the amount of the ERC
Employers can request a payment in advance if their ERC is higher than the taxes they are required to pay. Kentucky Employee Retention Credit Subtraction
Carry forward any excess credit to subsequent quarters

Employers should avoid these common mistakes when filling out Form 941 and ensure that they are filled out correctly.

Use the latest Form 941, which reflects all the updates and changes made to the ERC by new laws.
For calculating and reporting your ERC, follow the IRS’s instructions and worksheets.
Use Line 11c to report the qualified wages and health insurance costs paid to eligible employees
Use Line 13d to report the amount of credit claimed for each quarter
Use Line 13f for any advance payment received from 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 and attach any supporting documents or schedules

You can find some helpful tips on how to fill out Form 941 here:

Form 941 can be submitted faster and more securely by using electronic filing (efile) or online services
Updates, FAQs, and guidance about Form 941, the ERC, and other IRS forms can be found on the IRS website.
You can also contact a tax expert or the IRS for clarifications and assistance if you need it.

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. Employers can use Form 941/X for Kentucky Employee Retention Credit Subtraction

Claim a credit or refund for the taxes you overpaid by claiming 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.

Employers should avoid these common mistakes when filling out Form 941 X and ensure that they are filled out correctly.

Use the latest form 941X that reflects changes to laws that are applicable to the ERC.
For calculating and reporting your ERC, follow the IRS’s instructions and worksheets.
Use Part 2 of Form 941 to indicate which lines are being amended or corrected.
Use Part 3 to explain the reason for a correction or adjustment on Form 941
Use Line 24 to report any additional qualified wages and health insurance costs paid to eligible employees
Line 25 is the place to enter any additional credit claims for each quarter.
Use Line 26 for any refunds or credits due to ERC claims.
Sign and date Form 941, and attach any supporting documentation or schedules

You can find some helpful tips on how to fill out the Form 941-X here:

Filter a separate Form 941/X for every quarter that needs to be corrected or adjusted Kentucky Employee Retention Credit Subtraction
If you discover an error on Form 941 or make an adjustment, file Form 941X as soon as you can.
Updates, FAQs, and guidance about Form 941X and ERC can be found on 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 submitting Form 941 generally falls on the last calendar day of the following month. 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 following quarter. For example, Q1 2020 (January to March) requires that Form 941 be returned by May 10, 2021. Kentucky Employee Retention Credit Subtraction

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 Q1 2020 (January – March), for example, Form 941 is due on April 30, 2020. If an employer filed Form 941 on April 30, 2020, and paid the tax on April 30, 2020, the deadline for filing Form 941-X is 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 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 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.

Do not miss out on this opportunity if you’re an employer that meets the ERC eligibility criteria. The ERC has a time limit and deadline for claiming. 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 also contact the IRS or a tax professional for assistance or clarification if needed.

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. We hope that this article helped you to understand more about ERC and the claim process. Thank you for reading. Stay safe.

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

Kentucky Employee Retention Credit Subtraction

What is ERC?

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

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

Does everyone qualify for the ERC program?

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

Below are some details about eligibility.

A government order imposed a suspension (full or partial) on the business or organization due to COVID-19.
The gross receipts they had for a calendar-quarter in 2020, 2021 or both were less than 10% of their gross receipts during the same quarter last year.
It is a recovery-startup business that has been operating since after February 15, 2020. Their average annual gross receipts are no more than one million dollars.

How much is the ERC?

The amount ERC received by a business or organization will depend upon several 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. If you want a more detailed explanation, read the above article.

How to claim your ERC?

To claim the ERC an employer must submit a federal employment reform (Form 941)-X or a revised employment tax return to 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 for Filing the ERC Forms?

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

The last day for Form 941 in most cases is the last month following the end each quarter. In contrast, the deadline to submit Form 941 X is generally set at three years since the date of the original 941. This can also be up to two years, based on the date when the tax is paid.