Rich Smith How To Apply For Employee Retention Credit 2023 Update

Many businesses and organizations have faced unprecedented hardships and challenges as a result of the COVID-19 pandemic. 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.

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 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? Rich Smith How To Apply For Employee Retention Credit 2023 Update

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 is a refundable tax credit that was created by 2020’s CARES Act and has been extended and changed by subsequent legislations of 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 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 50%, and the limit is $5,000 per employee for the entire year. For 2021, the percentage will be 70%, and the limit per quarter is $7,000 for each employee. For 2023, there will be a 70 percent percentage for the initial two quarters of the year and a 40 percent percentage for the last two. There will also be a limit of $10,000 per employee each quarter. Rich Smith How To Apply For Employee Retention Credit 2023 Update
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 is available to employers who suffered a significant reduction in gross revenues or a partial or full suspension of operations because of an eligible government order relating COVID-19. For 2023 only, employers that are classified as recovery startup business can claim the credit.
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 for the Employee Retention Credit (ERC), an employer must meet one of the following two main criteria:

The employer’s business or organisation was suspended in whole or in part by a government decree due to the COVID-19, during a quarter calendar of 2020 or 21
Employer’s gross receipts in a calendar quarter of 2020 or 2021 was less than 50% or 80% of the gross receipts in the same quarter 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

An order of the government can suspend a business or an organization in full or part if it:

The order restricts the commerce, travel and group meetings that are prohibited by COVID-19
The order impacts the operations of a business or organization
The order applies to all calendar quarters in 2020 and 2021

These are some examples:

Orders to stay at home that prevent non-essential companies from operating
Certain businesses have curfews that limit their hours of operations
Limits to the number of clients or customers that a company can serve
Travel restrictions or travel bans that limit the ability of businesses to transport products or services

To determine whether an employer’s business was suspended fully or partially by a government directive, the employer must:

The nature and scope of the order and how it affects the operations of the business
The duration and frequency of the order and how it coincides with the calendar quarters
The extent and severity of the impact of the order on the revenues and expenses of the business

Revenue Decline

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

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 revenue for any quarter of 2021 was less than 80% that for the same period in 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
Interest, dividends, rents, royalties, and annuities
Donations, contributions, grants and gifts Rich Smith How To Apply For Employee Retention Credit 2023 Update
Dues and fees for membership
Gross income from trades or businesses

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

The same method of account (cash, accrual or accrual) was used in filing the federal income tax return.
The same calendar year quarters that it used to file its federal employment tax returns (Form 941) for 2019 and 2020/2021
The same sources of income that it reported on its federal income tax return for 2019

Recovery Startup Business

A recovery startup is a business:

Began carrying on any trade or business after February 15, 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

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.

Maximum credit per quarter: $50,000
Only wages paid during the third and fourth quarters in 2021 are eligible for this credit
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 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 the employer’s business was affected by the pandemic, either by having to close or reduce operations due to government orders or by having a big drop in income compared to 2019
What number of employees did the employer have in 2019 and 2020/2021?
How much the employer paid to each employee and their health insurance during the pandemic

To claim the ERC, the employer must fill out and submit a form to the IRS. The employer has to fill out the forms and show how much he paid his employees, as well their health insurance, to qualify for ERC. The IRS will 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 will not be available indefinitely. It began in March 2019 and will finish in September 2020. The employer must claim ERC before the expiration date or when it becomes unavailable. The employer should also make sure to not waste the money. Rich Smith How To Apply For Employee Retention Credit 2023 Update

Below is more detailed information on the credit amount and calculation of ERC.

Time Period

The ERC was implemented, amended, or terminated by various laws in 2020. The credit amount varies depending on the time period for which it is claimed. The table below summarises key features and differences for the ERC in each time frame:

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. Employers are classified as small or large employers based on their number of full-time workers (FTEs), and the period in which they were employed. The following table summarizes rules and thresholds to determine employer size.

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. Qualified wages include tips, commissions, bonuses, severance pay, sick leave pay, family leave pay, and other forms of compensation. Qualified wages also include the cost of providing health insurance to eligible employees, such as premiums, deductibles, co-pays, and 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. Rich Smith How To Apply For Employee Retention Credit 2023 Update

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 the Credit and Report It

For the Internal Revenue Service to grant the Employee Retention credit (ERC), employers must file either a federal tax return for employment (Form 941), or an amended tax return for employment (Form941-X). The employer must report the qualified wages and health insurance costs paid to eligible employees and the amount of credit claimed for each quarter.

Form 941

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

ERC – Reduce the amount the employer is required to pay in taxes.
The employer can request an advanced payment of the ERC credit if it exceeds taxes that they have to deposit. Rich Smith How To Apply For Employee Retention Credit 2023 Update
Carry over any excess credit into the following quarter

To ensure the correct completion of Form 941, and to avoid common errors:

Use the most recent version of Form 941, which reflects any changes or updates to the ERC laws.
The IRS has provided worksheets to help you calculate the ERC.
Use line 11c to report qualified wages paid and health insurance premiums paid to eligible employees
Use Line 13d to declare the credit amount claimed for each quarter
Line 13f should be used to report any advance payments made by the IRS.
Use Line 24 to request a credit advance if necessary
You can report excess credit on Line 25 for the following quarters.
Sign Form 941, date it and attach any documents or schedules that you wish to include.

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

Use online services or electronic filing to submit Form 941 more quickly and securely
The IRS website has updated FAQs on the ERC and Form 941.
Need clarification? Contact an IRS agent or tax professional.

Form 941-X

Form 941-X allows you to correct mistakes or make adjustments in Form 941 that has already been filed. The employer can also claim the ERC retroactively by using Form 941X. The employer can use Form 941-X to: Rich Smith How To Apply For Employee Retention Credit 2023 Update

Claim a refund or credit for overpaid taxes due to claiming the ERC
Report additional qualified wages paid and health insurance premiums paid to eligible workers that have not been reported on Form 941
The amount of credit claimed will be affected by any mistakes or omissions in 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 version of Form 941-X that reflects the changes and updates made by the laws that affect the ERC
Follow the instructions and worksheets provided by the IRS for calculating and reporting the ERC
Use Part 2 to indicate which lines of Form 941 are being corrected or adjusted
Use Part 3 for explaining why form 941 has been corrected or adjusted
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.
You can use Line 26 to request a refund or credit due to claiming ERC.
Sign and date the Form 941 X and add any supporting documents or schedules.

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

Filter a separate Form 941/X for every quarter that needs to be corrected or adjusted Rich Smith How To Apply For Employee Retention Credit 2023 Update
Fill out Form 941-X immediately after you find an error in Form 941
The IRS website has updated FAQs on the ERC, Form 941 X, and updates to the IRS website.
If you need clarification or assistance, contact the IRS or an accountant.

Deadline and Statute of Limitations

The last day to file Form 941 usually falls on the last month after the end of each quarterly period. 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, Q1 2020 (January to March) requires that Form 941 be returned by May 10, 2021. Rich Smith How To Apply For Employee Retention Credit 2023 Update

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), the Form 941 must be filed by April 30th 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 employer filed form 941 on April 30 2020 and paid the tax by June 15, 2020, then the deadline to file Form 941-X will be June 15, 2022.

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

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 is a refundable tax credit that varies depending on the time period, the number of employees, and the amount of qualified wages and health insurance costs paid to eligible employees. 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 does not last forever. It has a deadline, and there is a statute of limitations for claiming the ERC. It is important to file your forms quickly and correctly. This article provides tips and resources that will help you avoid common errors. If needed, you can also reach out to the IRS or a professional tax advisor for clarification or help.

ERC can have a significant impact on your business, organization, and your employees. It can help your business or organization retain workers, maintain cash flow and recover from a pandemic. We hope this article has helped you understand more about the ERC and how to claim it. Stay safe and thank you for reading.

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

Rich Smith How To Apply For Employee Retention Credit 2023 Update

What is ERC?

The Employee Retention Credit is a tax credit for employers who retained their employees in their payroll during the COVID-19 pandemic.

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 eligibility is not universal. It is only available to employers who have retained employees and paid their wages to them between March 13, 2020, and December 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.
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.

How much is ERC?

The amount ERC received by a business or organization will depend upon several 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. The article above provides a detailed explanation on how ERC is calculated.

How do I claim my ERC?

To claim the ERC, an employer must file a federal employment tax reform or an adjusted employment tax return (Form 941-X) with 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?

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

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