Washington State Employee Retention Credit

Many businesses and organizations have faced unprecedented hardships and challenges as a result of the COVID-19 pandemic. Many employers faced decreased revenues, increased costs, and disruptions of operations as a result of lockdowns.

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. 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 (ERC)? Washington State Employee Retention Credit

Employee Retention Credit (ERC) is a refundable credit available to tax-exempt and for-profit organizations and businesses that have employees who were affected by COVID-19. The ERC, created in 2020 by the CARES Act, was then extended and modified through subsequent legislation in both 2021-2023. The ERC encourages employers to maintain their workers and to provide health benefits to them 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 percentage and the maximum credit vary depending on how long the credit can be claimed. For 2020, the percentage is 50%, and the limit is $5,000 per employee for the entire year. In 2021, 70% of the employees will be eligible for the maximum. The limit per employee is $7,000. In 2023, 70% of the employees will be eligible for the first two quarterly limits and 40% in the final two. The limit for each employee is $10,000. Washington State Employee Retention Credit
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.
Employers may claim the credit if their gross receipts have declined significantly or they have had to suspend operations in whole or part due to a COVID-19-related government order. Alternatively, for 2023 only, employers who are considered recovery startup businesses can also 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 request an advance payment by submitting Form 7200.

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

Eligibility Criteria

To qualify as an employer for the Employee retention Credit (ERC), you must meet at least one of the two criteria below:

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
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 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 commerce, travel or group meetings because of COVID-19
The order affects the operations of the business or organization
The order applies to any calendar quarter in 2020 or 2021

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

Stay-at-home orders prohibiting the operation of non-essential businesses
Certain businesses are subject to curfews which limit their hours of operation
Limits to the number of clients or customers that a company can serve
Bans on travel or restrictions on the ability to transport goods or service by a business

Employers must take into account the following to determine whether a business has been suspended in full or in part by an order of government:

How the nature and scope and the order affect the operation of the business
The order’s duration, frequency, and alignment with the calendar quarters
The order’s impact on revenues and expenses

Revenue Drop

A significant decline in gross revenues is experienced by a business or organization if:

The gross receipts from any quarter in 2020 is less than 50% its gross receipts from the same calendar quarter in 2019.
The gross receipts for any calendar quarter in 2021 were less than 80% of its gross receipts for the same quarter in 2019

Gross receipts are defined as the total amount received or accrued by a business or organization from all sources during its annual accounting period without any deductions. Gross receipts can include:

Sales of Goods and Services
Interest, dividends rents royalties and annuities
Contributions are gifts, donations and grants Washington State Employee Retention Credit
Membership dues
Gross business income

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

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

Recovery Startup Business

The recovery startup business is one that:

After February 15, 2020, you can start any business or trade.
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

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.

Maximum credit per quarter: $50,000
The credit will only be available to employees who have paid wages in the third quarter and fourth of 2021
The credit is subject to an overall cap of $250 million for all recovery startup businesses

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Credit Amount Calculation

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

The employer’s business has been affected by the pandemic. This could be due to the government ordering the closure or reduction of operations or a significant drop in income from 2019.
The number of employees that the employer has in 2019 or 2020/2021 and whether or not they worked during the pandemic
What the employer paid each employee for their health insurance and during the pandemic

The employer has to fill out some forms and send them to the IRS to claim the ERC. 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 review the forms and pay the money back to the 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 won’t be around forever. The ERC will expire in September 2022. The employer is required to claim ERCs before they expire, or are no longer available. Employers must also use the money well and not waste it. Washington State Employee Retention Credit

Below you will find detailed information on ERC, including the amount of credit and the 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

The Number of Employees

The number affects the calculation of qualified wages for employees and their health insurance costs. A small employer or a large employer is determined by the number of employees who worked full-time (FTEs) in 2019 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)

Qualified Wages and Health Insurance Costs

Qualified wage is the number of wages that are paid to employees who qualify during a time when a business has been suspended or revenue has decreased. Qualified wages can include severance payment, bonuses, severance tips, sick pay, family pay and other forms compensation. Qualified salaries also include the costs of providing health coverage to eligible workers, including premiums, copays, deductibles, and coinsurance.

The definition and calculation of qualified wages and health insurance costs depend on the employer size and the time period. The following table provides a summary of the rules for different scenarios. Washington State 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 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 is required to report the qualified wages, health insurance costs and credit claimed by each quarter.

Form 941

Form 941 is a quarterly tax return that the employer must file to show his federal tax liabilities. This includes income taxes, Medicare tax and Social Security taxes. The employer can also claim the ERC in Form 941 for future or current quarters. The employer can use the Form 941 for:

Reduce the amount of taxes that the employer has to deposit with the IRS by the amount of the ERC
If the ERC is greater than the tax that the employer must deposit, you can request an advance payment. Washington State Employee Retention Credit
Carry over any excess credit into the following quarter

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

Use the latest version of Form 941 that reflects the changes and updates made by the laws that affect the ERC
Follow the IRS instructions and worksheets for calculating the ERC and reporting it.
Use Line 1c to report on the health insurance and wages that eligible employees have received.
Report the amount of credit claimed each quarter using Line 13d.
Line 13f should be used to report any advance payments made by the IRS.
Use Line 24 to request an advance payment of the credit if needed
Use Line 25 to report any excess credit that can be carried forward to subsequent quarters
Sign the form 941, and attach any supporting documents.

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

Use online services or electronic filing to submit Form 941 more quickly and securely
You can find updates, FAQs, and more information on the IRS site about Form 941, the ERC.
Contact the IRS or a tax professional for assistance or clarification if needed

Form 941-X

Forms 941-X are used to rectify errors or make adjustments to Forms 941 previously submitted. The employer can also claim the ERC retroactively by using Form 941X. The employer can use the Form 941 X to: Washington State Employee Retention Credit

Claim refunds or credits for taxes overpaid due to the ERC
Report additional qualified wages and health insurance costs paid to eligible employees that were not reported on Form 941
Correction of errors or omissions on Form 941 which affect credit amount claimed

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.
Follow the instructions and worksheets provided by the IRS for calculating and reporting the ERC
Use Part 2 to indicate the lines on Form 941 that are being corrected or adapted.
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 to report any credit or refund due to the ERC claim.
Sign the form 941-X, date it and include any documents or schedules that you wish to attach.

Some tips and resources for filling out Form 941-X are:

You must file a separate 941X form for each quarter you are correcting or adjusting. Washington State Employee Retention Credit
File Form 941-X as soon as possible after discovering an error or making an 0adjustment on 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. The employer can still file Form 941 if they have deposited their taxes on time. After the end of the quarterly period. For Q1 2021 (January-March), form 941 must be submitted by May 10, 2020, Washington State Employee Retention Credit

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 example, for Q1 2020 (January-March), Form 941 was due by 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 may be claimed through IRS Forms 941 and 941X, which require the employer to report the qualified wages paid and the health insurance expenses incurred by each employee.

Don’t miss this chance to get a tax break if your employer meets the ERC criteria. The ERC does not last forever. It has a deadline, and there is a statute of limitations for claiming the ERC. To avoid making common mistakes, you should fill out the forms correctly using the information and tips in this article. If needed, you can also reach out to the IRS or a professional tax advisor for clarification or help.

ERCs can be a huge help to your organization or business and its employees. It can be used to help retain your employees, maintain your cash flow, and recover in the event of a pandemic. We hope that this article helped you to understand more about ERC and the claim process. Stay safe and thank you for reading.

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

Washington State Employee Retention Credit

What is an ERC?

Employee Retention Credit: This is a credit that employers can claim if they retained employees 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

Are all ERC applicants eligible?

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.

There are also criteria for eligibility; more details can be read above, but here are the highlights:

A government order suspended the business (fully or partly) because of the COVID-19 epidemic.
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.
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 that an organization or company receives in ERC will depend on many factors.

One of the factors is the length of time the company has been in business, the number and type of employees it has, the amount that qualifies as wages, or the health insurance premiums paid to employees who are eligible. If you want a more detailed explanation, read the above article.

How to claim ERC?

For an employer to claim the ERC, they must file either a federal reform of employment tax or an amended employment tax return (941-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.

When is the deadline to submit the ERC form?

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

The deadline for Form 941 is usually the last day in the month after the end of every quarter. The deadline for Forms 941-X, however, is usually three years after the date the original Form was completed. It can also be from two years from the date that the tax was paid, with the later date being the more preferred one.