Linda Warner Employee Retention Credit

COVID-19’s pandemic caused unimaginable hardships to many organizations and businesses around the globe. 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.

To help employers retain their employees and provide them with health benefits during this difficult time, the U.S. government has introduced the Employee Retention Credit (ERC), a refundable tax credit that can offset some of the payroll costs for eligible employers.

The ERC has been in place since 2020 when the CARES Act was passed. Later, in 2021 and again in 2023, it was modified and extended by new legislation. This article will explain the ERC, how it functions, and how you can claim it.

For a brief reading of what the Employee Retention Credit or ERC is, take a look at this video from the YouTube channel “ERC Specialists”. You can also continue below to read an in-depth explanation of ERC.

What is Employee Retention Credit? Linda Warner Employee Retention Credit

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 was created by the CARES Act in 2020 and was extended and modified by subsequent legislation in 2021 and 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

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 percent is 50%, and the limit is $5,000 for each employee per year. For 2021, the percentage will be 70%, and the limit per quarter is $7,000 for each employee. 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. Linda Warner Employee Retention Credit
The credit is fully refundable, meaning that if the amount of the credit exceeds the employer’s payroll tax liability, the excess will be paid to the employer as a refund.
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. The credit can be claimed by employers who have been classified as recovery startups only until 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 may also request an advanced payment of the credit using Form 7200.

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Eligibility Criteria

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

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.
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.

A special rule is in place for businesses that have started operating after February 15, 2020, and whose average gross receipts per year are no more than one million dollars. These businesses may qualify for ERC regardless of revenue or business suspension.

Business Suspension

A government order may suspend a business, or even partially suspend it.

The order restricts commerce, travel or group meetings because of COVID-19
The order will affect the operation of the business or the organization
The order will apply to any calendar month in 2020 or even 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
Capacity limitations that reduce the amount of customers or clientele that a firm can service
Travel bans and restrictions that restrict the ability for a company to transport services or goods

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

The nature and extent of the order, and its impact on the operation of your business
The length and frequency of your order and the way it corresponds to the calendar quarters
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 revenue for any calendar-quarter in 2020 was less than 50 percent of the gross revenues for the same period in 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 can be defined as all the money received by an organization or business from any source during their annual accounting period, without deductions. Gross receipts consist of:

Sales of Goods & Services
Interest, dividends, rents, royalties, and annuities
Gifts, donations, and contributions Linda Warner Employee Retention Credit
Dues and fees for membership
Gross profit from business or trade

To calculate and compare gross revenue for different quarters using the following:

Use the same method (cash or accrual accounting) as it used when filing its federal income taxes 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.
The same sources of revenue that they reported on their federal income tax return in 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

Even if it does not meet the criteria for revenue decline or suspension of business, a recovery startup can still qualify. Recovery startups are not exempt from certain rules and restrictions.

Maximum credit per quarter: $50,000
The credit can only be used for wages paid between the third and the fourth quarters of 2020
The credit has a cap of 250 million dollars for all startup businesses that are eligible.

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Credit Amount and Calculation

There are different ERC rules and amounts for different employers and periods of time. 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

Employers must complete and send IRS forms to claim ERC. The forms have to show how much the employer paid to their employees and their health insurance and why they qualify for the ERC. The IRS will verify the forms, and then give the money to your employer. 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 began in March 2019 and will finish in September 2020. The employer must claim the ERC prior to its expiration or becoming unavailable. The employer also has to use the money wisely and not waste it. Linda Warner Employee Retention Credit

Here is more information about the ERC and its calculation.

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 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

Number of Employees

The number employed affects how wages are calculated and defined, as well as the health insurance premiums for eligible employees. An employer is considered a small or large employer depending on the time period and the number of full-time employees (FTEs) it had in 2019. The table below summarizes the rules and thresholds for determining employer size in 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, Health Insurance Costs

Qualified Wages are wages that eligible employees receive during periods of suspension or decline in revenue. Qualified wage includes tips and bonuses, as well as severance, pays, sick leave payments, family leave payments and other types of compensation. Qualified salaries also include the costs of providing health coverage to eligible workers, including premiums, copays, deductibles, and coinsurance.

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

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 the Credit and Report It

To claim the Employee Retention Credit (ERC), an employer must file a federal employment tax return (Form 941) or an adjusted employment tax return (Form 941-X) with the Internal Revenue Service (IRS). 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 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 Form 941 to:

ERC reduces taxes that employers have to deposit at the IRS.
If the ERC is greater than the tax that the employer must deposit, you can request an advance payment. Linda Warner Employee Retention Credit
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 newest version of the Form 941, which reflects changes to laws that impact the ERC.
Use the IRS worksheets and instructions to calculate and report the ERC
Use Line 11c to declare the wages and costs of health insurance paid to employees who qualify.
Report the amount of credit claimed each quarter using Line 13d.
Use Line 13f to declare any advance payments received from the IRS.
Use Line 24 to request a credit advance if necessary
Use Line 25 to report any credit excess that can be carried over to the next quarter.
Sign and date Form 941, and include any supporting documents and schedules.

Tips and resources on how to complete Form 941 include:

Use online services (e-file or online filing) to submit Form 941, faster and with greater security.
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. Form 941-X allows employers to claim ERC retroactively. The employer can use Form 941-X to: Linda Warner Employee Retention Credit

Claim the ERC to get a refund of taxes that you have overpaid.
Report additional qualified earnings and health benefits paid to eligible employee that weren’t reported on Form 941.
Correction of errors or omissions on Form 941 which affect credit amount claimed

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

Use the latest Form 941-X which reflects all the updates and changes made to the ERC by new laws.
Follow the instructions and worksheets provided by the IRS for calculating and reporting the ERC
Use the Part 2 to indicate on which lines you are correcting or adjusting Form 941
Use Part 3 to explain your corrections or adjustments on Form 941.
Use Line 24 to report any additional qualified wages and health insurance costs paid to eligible employees
Use Line 25 to claim any additional credit for each quarter.
Use Line 26 for any refunds or credits due to ERC claims.
Sign and date Form 941-X and attach any supporting documents or schedules

The following are some resources and tips for filling in Form 941X.

Fill out a separate form 941-X per quarter being corrected or recalculated Linda Warner Employee Retention Credit
After making a correction or finding an error, you should file Form 941X.
You can find updates, FAQs, and more information on the IRS site about the ERC and Form 941X.
You can also contact a tax expert or the IRS for clarification or additional assistance.

Deadline and Statute of Limitations

The deadline to submit Form 941 is usually the last day in the month following each quarter. For Q1 2021 (January-March), the Form 941 must be filed by April 30th, 2021. In the event that an employer has deposited the taxes due on time for a particular quarter, Form 941 can be filed by the 10th date of the following month. After the end of the quarterly period. For example, for Q1 2021 (January-March), Form 941 is due by May 10, 2021, Linda Warner Employee Retention Credit

The deadline for submitting Form 941X is usually three years following the original date of Form 941 or two after the date on which the tax was paid. 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 credit can be claimed with IRS Forms 941 or 941X by reporting to them the qualified health insurance and wages costs as well as the amount claimed each quarter.

Do not miss out on this opportunity if you’re an employer that meets the ERC eligibility criteria. The ERC does not last forever. It has a deadline, and there is a statute of limitations for claiming the ERC. Use the resources and tips provided in this article to ensure that you fill out your forms correctly and avoid common mistakes. If you need clarification or assistance, you can contact the IRS.

ERCs are a powerful tool that can help your company or organization, as well as your employees. You can use it to retain employees, keep your cash flowing, and recover after a pandemic. This article is intended to help you better understand the ERC, and how it can be claimed. Thanks for reading and please stay safe.

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Linda Warner Employee Retention Credit

What is ERC?

Employee Retention Credit: This is a credit that employers can claim if they retained employees during the COVID-19 pandemic.

It was created in March of 2020 by the CARES Act and later extended and amended by the CAA Act of December 2020 (Consolidated Appropriations Act of 2021).

Does everyone qualify for the ERC program?

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

Below are some details about eligibility.

A government order imposed a suspension (full or partial) on the business or organization due to COVID-19.
Their gross receipts in a quarter of 2020 or 2021 are less than the percentage of their gross revenue in the same quarter of 2019.
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.

What is the ERC rate?

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. To learn more about how ERCs are calculated, please read the 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.

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 to file the ERC Forms

The deadline for filing the ERC forms is different for Form 941 and Form 941-X.

Form 941 deadline is typically the last of the month following each quarter. For Form 941X, the deadline is three years following the date on which the original form 941 was filed. It can also be from two years from the date that the tax was paid, with the later date being the more preferred one.