Nearly all US business sectors were impacted in some way by the COVID pandemic. With 76 percent of paying workers no longer able to work, the financial impact was significant.
In response, the government brought in employee retention credit to mediate some of the damages.
This is a refundable tax credit that employers can use to recover the wages paid to employees who could not work during the last quarter.
Suppose your business was severely impacted by covid-19. In that case, you could recover up to 70 percent of the wages you paid up to $10,000 for each calendar quarter.
In this article, we’ll be explaining how to claim the employee retention credit. Let’s dive in!
Who’s Eligible To Claim The Employee Retention Credit?
You can make a claim under the following stipulations:
If your business operation was fully or partially suspended during any calendar quarter of 2021 due to orders from a governmental authority.
This includes restrictions on commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19.
Or, if your business endured a significant downturn in gross receipts during the calendar quarter, you’re also eligible.
By significant decline, this means that your gross receipts were less than 20 percent of gross receipts for the same calendar quarter in 2019.
What Are The Benefits Of The ERC? What Does It Include?
The maximum claim you can make on any employee in 2021 is $7,000 per quarter per employee. This is calculated from the $10,000 allowance stipulated for any calendar quarter.
Since you can claim up to 70 percent of the amount paid to an employee during each quarter of 2021. This amount also includes allocable qualified health plan expenses.
How’s ERC For 2021 Calculated?
ERC is calculated according to qualified wages. For a salary to qualify, it must have been received when:
- An employee was not able to render services due to COVID restrictions
- During a time when the business’s gross receipts experienced a significant decline.
Such wages are calculated as follows:
Suppose a business has less than 100 full-time employees affected by these stipulations. In that case, it’s considered a ‘small eligible employer.’
This allows you to include seasonal employers, part-time employees, and employers not in existence in 2019 under your qualified wages. These businesses can also apply for an advanced payment of credit using a 7200 form.
Whereas, if a business has more than 500 affected employees, it’s considered a ‘large eligible employer.’
For large eligible employers, their qualified wages will include paid to both active (working) employees and those not providing services. Larger businesses, however, cannot request an advance.
Instead, they can opt to take their claim before filing their employment tax returns. This means their employment tax deposits are reduced in anticipation of the employee retention credit. (See below for more details).
How Do You Make Your Claim?
To apply for ERC, you’ll need to report your total qualified wages and the related health insurance costs for each quarter on your quarterly employment tax returns. You can do this using form 941.
You can retain the corresponding ERC amount, that is, the amount you would have deposited to your employment tax, as a tax credit without incurring any failure to deposit penalties.
Suppose you’ve already filed your employment tax credit form. In that case, you can file with a 941-X form which allows you to amend a previously submitted 941.
In other words, if you have passed the relevant ERC quarter but you did not make an ERC claim earlier in the year, you can use this form to update your old quarterly tax returns.
What’s The Deadline For ERC?
Form 941 must be submitted by the last day of the month following the end of the quarter.
The tax quarters are:
- Q1: January, February, and March
- Q2: April, May, and June
- Q3: July, August, and September
- Q4: October, November, and December.
For example, if you intend to file for the first quarter, you would have to submit by April 30th for wages you pay during the first quarter, January through March.
Suppose you were claiming ERC using a 941-X, in other words, making a revision to a previously filed quarter. In that case, you have up to three years from the date you filed your original return.
Alternatively, you have two years from the date you paid the tax to make your claim (all quarterly Forms 941 filed for a calendar year are considered filed on April 15th of the following year.)
Can You File ERC And PPP In The Same Tax Year?
No, you cannot include employee wages claimed under PPP forgiveness. Employers in receipt of the Small Business Interruption Loan under the Paycheck Protection Program are not eligible for the Employee Retention Credit.
Can You Include Sick Wages?
If you received a tax credit for paid sick and family leave under the Families First Coronavirus Response Act, you will not be eligible for ERC.
The same is true for wages counted underpaid family and medical leave according to section 45S of the Internal Revenue Code.
Can You File For ERC If You Get Work Opportunity Tax?
Suppose you’re entitled to a work opportunity tax credit. In that case, your employees won’t qualify for ERC under section 51 of the Internal Revenue Code for the employee.
Are You Ready For The ERC Filing Process?
This may seem like a lot to take on. But, as with filing for any taxes, the rules around credits and reliefs can be confusing.
Filing the wrong documentation or losing track of a deadline can mean you miss out on opportunities you are eligible for.
ERC Today has all the information you need to claim the employee retention credit. We can help you get your tax retention credit fast with our accurate and speedy service. So, contact us today for more information!