As a business owner, you’re likely aware of the Employee Retention Credit (ERC), a tax credit designed to give back to businesses for keeping their employees on payroll during the COVID-19 pandemic. If you believe your business was evenly slightly affected by Covid-19, then the Employee Retention Credit (ERC) is the program for you to take advantage of.
Ian Samlin believes that “REIL has always strived to provide value for all business owners in the United States. The ERC Program does just that, as many businesses were heavily impacted by Covid-19 mandates set by the US Government, and this is a grant to thank them for their hard efforts during the tough Covid-19 times.” After reading this article, we hope that you feel the ERC program is the right fit for your business.
What is the Employee Retention Credit?
The Employee Retention Credit (ERC) is a tax credit that was introduced as part of the CARES Act in March 2020 to help businesses receive a tax credit for keeping their employees on their payroll during the COVID-19 pandemic. The credit is designed to provide financial relief to eligible employers who have experienced a significant decline in gross receipts or been fully or partially suspended due to a government order.
Who qualifies for Employee Retention Credit?
Employers, including tax-exempt organizations, are eligible to claim the Employee Retention Credit (ERC) if they meet the following criteria in 2020:
- Full or partial suspension of business: The employer experienced a full or partial suspension of their business during any calendar quarter due to government orders that restricted trade, travel, or group meetings as a result of COVID-19.
- Significant reduction in gross receipts: The employer had a substantial decline in gross receipts, with the decline starting on the first day of the first calendar quarter in 2020. The gross receipts for the relevant quarter must be less than 50% of the gross receipts the employer had during the same quarter in 2019.
These qualifications, as outlined by the IRS, determine whether an employer is eligible for the Employee Retention Credit.
How does the Employee Retention Credit work?
Pass the gross revenue or suspended operations test
To qualify for the Employee Retention Credit (ERC), you need to pass either the gross revenue test or the suspended operations test. Here’s an overview of the requirements for each test:
Gross revenue test:
- You must demonstrate a significant decline in gross revenue.
- In 2020, you need to show a reduction of at least 50% in gross revenue compared to the same quarter in 2019.
- In 2021, you need to show a reduction of at least 20% in gross revenue compared to the same quarter in 2019.
For example, if your gross revenue was $10,000 in the first quarter of 2019 and it decreased by 50% to $5,000 in the first quarter of 2020, you would meet the gross revenue test and be eligible to claim the ERC.
Suspended operations test:
- You must demonstrate that a government order required you to fully or partially close your business.
- The portion of your business affected by the closure must account for more than 10% of your total receipts or service hours worked.
- The government order must be specifically related to COVID-19.
If you can meet the criteria for either the gross revenue test or the suspended operations test, you may be eligible to claim the ERC for the applicable periods. It’s important to gather the necessary documentation and evidence to support your qualification under either test when applying for the credit.Calculate your Qualified Wages
To calculate your qualified wages for the Employee Retention Credit (ERC), follow these steps:
Determine the number of eligible employees: Count the total number of employees who meet the eligibility criteria for the ERC during the relevant quarter.
Calculate the total amount of qualifying salaries: Add up the wages paid to all eligible employees during the eligible period. This includes wages subject to FICA taxes and certain qualified health plan expenses.
For 2020:
— The credit amount is generally 50% of the qualified wages paid to eligible employees.
— The maximum credit per employee per calendar quarter is $5,000.
— Multiply the total qualified wages by 50% to calculate the credit amount.
For 2021:
— The credit amount is 70% of the qualified wages paid to each employee.
— The maximum credit per employee for all calendar quarters is $7,000.
— Multiply the total qualified wages by 70% to calculate the credit amount.
Remember that the maximum credit is applied on a per-employee basis and is subject to the quarterly limitations mentioned. Make sure to accurately calculate your qualified wages to determine the credit amount you can claim for each eligible employee.
Modify your Payroll Tax Return
Once you have calculated your Employee Retention Credit (ERC), the next step is to file a claim with the IRS. Here’s what you need to do:
- Modify your payroll tax return: For each qualifying quarter, you will need to amend your original payroll tax return. This can be done using Form 941-X, which is used to correct errors on previously filed Form 941.
- Reduce deductible wages: With the ERC amount determined, you can reduce the amount of wages that are eligible for deduction on your income tax return. This means that the ERC will effectively lower your taxable income.
- File Form 941-X: Complete Form 941-X accurately, providing the necessary details regarding the modification of your payroll tax return. Include the correct amounts of the ERC and any adjustments to deductible wages.
- Submit the claim: Once you have completed Form 941-X, you need to file it with the IRS. Be sure to follow the instructions provided by the IRS for submitting the form and any supporting documentation required.
By filing the amended payroll tax return using Form 941-X and claiming the ERC, you can adjust your tax liabilities and potentially receive a refund or credit against other tax obligations. It’s important to ensure the accuracy of your claim and comply with the IRS guidelines throughout the process.
How do I claim Employee Retention Credit?
Here’s the general process on how to file your employee retention credit, and after that, we’ll share how we can simplify this for you!
Step 1: Determine Your Eligibility
Before you can claim the ERC, you need to determine if your business is eligible. To be eligible for the ERC program, your business must have experienced a 50% decrease in gross receipts in 2020 compared to 2019, a 20% decrease in gross receipts in the year 2021 compared to 2019, or been fully or partially suspended due to a government order. There are a few ways your business could have been affected in order to be eligible.
Step 2: Calculate Your Credit
The next step after determining your eligibility is calculating your credit. The ERC is equivalent to 50% of qualified wages paid to employees. There’s a maximum of $10,000 per W2 employee total, meaning the maximum credit per employee is $7,000 for the first three quarters of 2021 and $5,000 per W2 in its entirety for 2020.
Step 3: Complete Form 941
Completing Form 941, the Employer’s Quarterly Federal Tax Return, is important to be able to claim the ERC. With this form, you need to document the qualified wages paid to employees and the amount of the ERC you’re claiming for the quarter. You’ll also need to report any advance payments of the ERC you received during the quarter.
Step 4: File Form 941
After completing Form 941, it’s time to file it with the IRS. You can either file through the IRS’s e-file system or file a paper return by mail. Take note of the deadline to qualify for all of 2020 is April 15th, 2024.
Step 5: Claim Any Unused Credit
You can claim unused credit as a refundable credit on your tax return if your ERC exceeds your payroll tax liability for the quarter. You can do this by completing Form 7200, the Advance Payment of Employer Credits Due to COVID-19. You can file Form 7200 after you’ve filed Form 941 for the quarter.
How REIL Can Help With Your ERC
We make your ERC application a breeze with our hassle-free procedure! First, you will go through a quick screening process just to determine how you can qualify. Next, a capital specialist will be in touch with you within a day.
The next thing you should do is provide the appropriate documents to us, and we will calculate your tax rebate. When all of the documents are provided, all you have to do is relax, take care of your other matters, and wait for your check to arrive.
It’s that simple!
Conclusion
In conclusion, claiming the Employee Retention Credit can provide much-needed relief for businesses struggling during the COVID-19 pandemic. By allowing REIL to facilitate the program for you, you can ensure that you’re claiming the credit correctly and maximizing your benefit.
If you’re unsure about the program, our founder of REIL Capital, Evan Samlin, felt that “between the effects of Covid-19, rapid inflation and supply chain issues, many small businesses are hurting. We found the ERC to be an integral program in helping small businesses navigate these turbulent times.”
Check out our page today to get started! Learn even more about the program by sending us a message. And when you’re ready, start today!
