Zzerc Employee Retention Credit

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.

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? Zzerc Employee Retention Credit

Employee Retention Credit (ERC), a refundable tax credits, is available for tax-exempt businesses or organizations with employees that were affected in any way by the COVID-19 Pandemic. The ERC was created by the CARES Act in 2020 and was extended and modified by subsequent legislation in 2021 and 2023. The ERC was created to encourage employers in crisis to keep workers on their payrolls and provide them health insurance.

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 percentage and the limit vary depending on the time period for which the credit is claimed. In 2020, the 50% percentage and $5,000 limit per employee is applicable for the entire calendar year. For 2021, the percentage will be 70%, and the limit per quarter is $7,000 for each employee. For 2023, there is a 70% percentage for the first 2 quarters followed by 40% for the second two quarters. There is a $10,000 limit per employee. Zzerc Employee Retention Credit
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.
Employers can claim this credit if they experienced a significant decrease in gross receipts due to an order from the government relating to COVID-19. In addition, employers who qualify as recovery-startup businesses for 2023 can also claim the credits.
Credits may be obtained by filing a revised employment tax form (Form 941X) or reducing employment deposit amounts in anticipation. Employers can also request an advance payment of the credit by filing Form 7200.

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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
The gross receipts of the employer for a calendar-quarter in 2020 or 2020 were less than 50 percent (for 2020), or 80 percent (for 2021), of their gross receipts during the same calendar quarter in 2019.

Additionally, there is an additional rule that only applies to startups who began operating on or after February 15, 2021, and have gross receipts totaling no more than $1.0 million. These businesses 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 limits commerce, travel, or group meetings due to COVID-19
The order has an impact on 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-athome orders restrict non-essential enterprises from operating
Curfews are restrictions on the hours that certain businesses can operate
Capacity limits that reduce the number of customers or clients that can be served by a business
Travel bans or restrictions that affect the ability of a business to transport goods or services

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

The order’s nature, scope, and impact on the business
The length and frequency of your order and the way it corresponds to the calendar quarters
The magnitude and impact of the order upon the revenue and expenses of a business

Revenue Decline

A business or organization is considered to have experienced a significant decline in gross receipts if:

The gross receipts of any calendar quarter in 2020 are less than half the gross receipts of the same quarter 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 consist of:

Sales of Goods & Services
Interest, dividends, rents, royalties, and annuities
Contributions, gifts, grants, and donations Zzerc Employee Retention Credit
Dues and fees for membership
Gross business income

Employers must use the following formulas to calculate gross receipts and compare them between quarters.

The same method of account (cash, accrual or accrual) was used in filing the federal income tax return.
The same quarters in the calendar year as those used for the federal employment tax returns (Form 941) filed by 2019 and 2020/2021
The same sources as reported in the federal tax return for 2019

Recovery Startup Business

A startup that is in recovery can be defined as

After February 15, 2020, you can start any business or trade.
If you have average annual gross revenues of less than $1 million in any three tax-year period that ends with the tax-year preceding the calendar quarter for credit determination.

The ERC is available to a recovery startup business regardless of whether or not it meets the criteria for business suspension or revenue decrease. However, there are some limitations and special rules that apply to recovery startup businesses, such as:

The maximum credit available per quarter is $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 and Calculation

For different lengths of time, different types of employers and different amounts of ERC, the ERC has different rules. The ERC is affected by the following main factors:

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
How many employees an employer had in 2019, 2020/2021 or whether they worked, or did not work during the pandemic
How much the employer paid to each employee and their health insurance during the pandemic

In order to receive the ERC from the IRS, the employer will need to complete some forms. 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 employer can then use the money for paying their employees, their health insurance and/or to receive refunds or credits on their payroll tax.

The ERC won’t be around forever. The ERC started in March 2020 and ends in September 2022. 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. Zzerc Employee Retention Credit

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 the credit varies according to the time period that it is applied for. 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 of eligible employees will affect the calculation and definition of health insurance and qualified wages. 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. This table summarizes thresholds and rules to determine the size of an employer for each 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 refer to wages paid during a period when the business is suspended or revenues are declining. Qualified wage includes tips and bonuses, as well as severance, pays, sick leave payments, family leave payments and other types 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 calculation of qualified wages, health insurance costs and employer size depends on the time period. The following table summarizes the rules and examples for different scenarios: Zzerc 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

The Internal Revenue Service (IRS) requires that employers claim the Employee-Retention Credit by filing a federal income tax return, Form 941, or a modified employment tax form (Form941X), with them. The employer will need to declare the qualified wages paid and the health insurance expenses paid for eligible employees. They must also report the credit claimed.

Form 941

Form 941 allows employers to declare their quarterly federal taxes, including income taxes, Medicare and Social Security tax. Form 941 is used by the employer to claim ERC for the current quarter or future. The employer can use the Form 941 for:

ERC – Reduce the amount the employer is required to pay in taxes.
You can ask for advance payment if your ERC exceeds the amount of taxes you have to pay. Zzerc Employee Retention Credit
You can carry forward any credit balance 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.
Use the IRS worksheets and instructions to calculate and report 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 if you require an advance credit payment.
You can report excess credit on Line 25 for the following 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 (e-file or online filing) to submit Form 941, faster and with greater security.
Check the IRS website for updates, FAQs, and guidance on Form 941 and the ERC
Need clarification? Contact an IRS agent or tax professional.

Form 941-X

The Form 941 X is used for corrections and adjustments to a Form 941. The employer can also claim the ERC retroactively by using Form 941X. Employers can use Form 941/X for Zzerc Employee Retention Credit

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

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

Use the latest version of Form 941-X that reflects the changes and updates made by the laws that affect the ERC
For calculating and reporting your ERC, follow the IRS’s instructions and worksheets.
Use Part 2 for indicating which lines of the Form 941 need to be corrected or adjusted
Use Part 3 for explaining why form 941 has been corrected or adjusted
Line 24 should be used to record any additional health insurance and wages paid to employees who qualify.
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 the Form 941 X and add 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 Zzerc Employee Retention Credit
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.
For clarifications or help, you can contact the IRS.

Deadline and Statute of Limitations

Form 941 must be filed by the last date of the month that follows the end each quarter. For example, for Q1 2021 (January-March), Form 941 is due by April 30, 2021. 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 quarter. For example, for Q1 2021 (January-March), Form 941 is due by May 10, 2021, Zzerc Employee Retention Credit

The deadline to file Form 941-X generally is three years after the date the original Form 941 is filed, or two years after the date the tax is paid. For example, Q1 2019 (January to March), Form 941 had to be submitted by April 30, 2019. If an employer submitted Forms 941 on 30 April 2020 and the tax was paid on 30 April 2020, it is now April 2023 before they can file Forms 941-X. 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 (ERC) Credit is an important tax benefit which can help employers that were affected by COVID-19 to retain their employees, and lessen the impact the pandemic had on their organizations or businesses.

The ERC, a refundable credit, varies according to the time period and number of employees as well as the amount of qualified wage and health insurance expenses paid to employees who are eligible. You can claim the ERC by submitting Form 941 to the IRS. This form will ask you for the number of employees, the amount paid in qualified wages and insurance costs each quarter, and how much credit is being claimed.

Do not miss out on this opportunity if you’re an employer that meets the ERC eligibility criteria. The ERC is not available forever and has a deadline and a statute of limitations for claiming it. It is important to file your forms quickly and correctly. This article provides tips and resources that will help you avoid common errors. If you need clarification or assistance, you can contact the IRS.

The ERC is a great tool for both your business and employees. It can help your business or organization retain workers, maintain cash flow and recover from a pandemic. This article aims to provide you with more information about the ERC. Thank you for reading. Stay safe.

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Zzerc Employee Retention Credit

What is ERC and what does it do?

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

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

Is everyone eligible for the ERC?

ERC eligibility is not universal. The ERC is only available to employers that have paid wages to employees between March 13, 2020, and December 31, 2021.

Below are some details about eligibility.

A government order suspended the business (fully or partly) because of the COVID-19 epidemic.
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.
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 ERC received by a business or organization will depend upon several factors.

These factors include time, the number of employees and the amount of wages that qualify. They also include health insurance costs for eligible employees. You can read the article above for a more detailed explanation of how ERC is calculated.

How to claim the 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 ERC’s deadline?

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

Form 941 deadline is typically the last of the month following each quarter. Meanwhile, the deadline for Form 941-X is generally three years from the date that the original Form 941 was filled. It can be as late as two years after you paid the tax, but the later date is the preferred date.