Are you an employer struggling to keep your employees employed during the COVID-19 pandemic? If so, you may be eligible for the Employee Retention Credit (ERC).
This guide will provide employers with an overview of the ERC, including eligibility criteria, how to calculate the credit, and the upcoming deadline for taking advantage of this credit. The ERC is a great way for businesses to offset some of the costs associated with keeping their employees on payroll.
In addition to providing an overview of this tax incentive, we’ll also discuss whether non-profit organizations are eligible and what 941 worksheets should be used when calculating your employee retention tax credit.
So if you’re looking for more information on how to take advantage of this valuable tax break before it’s too late – read on!
Who qualifies?
You may be eligible for this tax credit if your business has been affected by the pandemic, either through a government-mandated closure or a significant drop in profits.
The Employee Retention Credit (ERC) is available to trades or businesses whose operations were subject to a full or partial suspension on account of a governmental order, or who experienced a significant decline in gross receipts during the pandemic.
The amount of the credit is calculated based on a percentage of “qualified wages” including allocable qualified health plan expenses that an eligible employer pays to employees.
The ERC is designed to help employers offset some of the costs associated with retaining their employees during this difficult time.
To qualify for the credit, you must have had operations suspended due to orders from an appropriate governmental authority, or experience at least a 20% decline in gross receipts compared to 2019 figures.
Additionally, you must not receive assistance from other programs such as Paycheck Protection Program (PPP).
You can claim up to $5,000 per employee for wages paid between March 13th 2020 and December 31st 2020 and apply those funds against certain payroll taxes.
Are non-profit organization eligible?
With the March 31st deadline fast approaching, now is the time to see if your non-profit organization can take advantage of this amazing opportunity!
The Employee Retention Credit (ERC) allows for non-governmental tax-exempt organizations described in section 501(c) of the Internal Revenue Code that are exempt from tax under section 501(a) to be considered as a “trade or business” with respect to all operations of the organization.
This means that any non-profit organization may be eligible for a refundable tax credit against certain payroll taxes, allowing them to cover the cost of keeping their employees employed during the pandemic.
It’s important for those who think they qualify for this credit to understand how it works and use any available resources before the deadline passes, so they don’t miss out on this great chance at financial relief.
Businesses that received PPP Loans
If your business has taken a PPP loan, don’t miss out on the chance to get even more financial relief with the Employee Retention Credit!
The CARES Act and American Rescue Plan have eliminated the restriction that employers had to choose between taking a Paycheck Protection Program (PPP) loan or applying for the ERC. Eligible employers can claim the ERC even if they have received one or more PPP loans. However, an eligible employer cannot claim the ERC on any qualified wages that were used to obtain PPP loan forgiveness.
Employers should be aware of this limitation when calculating their credit amount and filing for their taxes. Businesses need to make sure that all applicable documents are filed correctly and timely in order to receive their credit properly. It is important to keep records of all payroll information and document how much was used for qualified wages in order to maximize the benefits of both programs.
How to Calculate the Credit
Don’t miss out on this great opportunity to get extra financial relief – calculating the Employee Retention Credit can be quick and easy!
For 2021, eligible employers can claim a credit against 70% of qualified wages they pay to employees after December 31, 2020 and before October 1, 2021. This translates to a maximum credit of $7,000 per quarter per employee – for a total of $21,000 for 2021.
Different rules apply depending on whether the employer averaged more or fewer than 100 full-time employees in 2019. For an employer that averaged more than 100 full-time employees in 2019 (a large eligible employer), qualified wages are generally those wages paid to employees that are not providing services due to either a partial or full suspension of operations as well as due to the decline in gross receipts during the pandemic.
For an employer that averaged fewer than 100 full-time employees in 2019 (a small eligible employer), qualified wages are generally those wages paid to all active employees during periods when operations were either partially or fully suspended, or when there was a significant decline in gross receipts compared with the same quarter last year.
Additionally, employers may elect to use an alternative quarter when determining whether their gross receipts have declined by comparing it with its immediately preceding calendar quarter from 2019.
With these few guidelines in mind, employers can easily take advantage of this great incentive!
Do you have to pay taxes on it?
You don’t have to worry about paying taxes on the credit, as it’s not included in your gross income for federal income tax purposes.
However, the Employee Retention Credit (ERC) does reduce the expenses that an eligible employer can otherwise deduct on its federal income tax return. The IRS has indicated that no deduction may be taken for the portion of wages paid equal to the sum of credits determined for the applicable taxable year. Therefore, if you’re claiming an ERC, you should keep track of how much is being credited and adjust any deductions accordingly.
It’s important to note that you must still report all wages paid to employees on your Form 941 even if part or all of those wages were covered by the ERC. This includes both qualified and non-qualified wages when calculating Social Security and Medicare taxes owed.
Additionally, these wages need to be reported on a W-2 issued to each employee at year-end as taxable income.
When is the Deadline?
The clock is ticking – you have until April 15, 2025 to submit the Employee Retention Credit (ERC) for 2021 quarters.
This deadline applies equally to trades or businesses whose operations were subject to a full or partial suspension on account of a governmental order, or who experienced a significant decline in gross receipts during the pandemic.
To ensure that employers are able to take advantage of this credit as soon as possible, it is important that they file their 941-Xs with the Internal Revenue Service for eligible quarters in 2020 by April 15, 2024 and ERC funds for eligible quarters in 2021 by April 15, 2025.
The amount of the credit is calculated based on a percentage of “qualified wages” including allocable qualified health plan expenses that an eligible employer pays to employees.
Making sure that filings are completed before these deadlines will help employers maximize their potential savings from the ERC program.
How to File for the ERC
Now that you know when the deadline for the Employee Retention Credit is, it’s time to learn how to file for it.
To begin, employers must first determine if they are eligible; this can be done by making sure that their operations meet all of the IRS’s qualifications.
Once eligibility has been established, employers can move forward and start filing for the credit. Originally, employers were able to claim the employee retention credit whenever they file quarterly taxes through Form 941.
However, since the 2021 deadline has already passed on September 30th, employers may still be able to file for the ERC in 2023 by amending previously submitted forms through Form 941-X in order to retroactively claim up to three years worth of employee retention credits.
How to Track Your ERC
Once you’ve navigated the filing process, it’s important to track your ERC so you can make sure your credit is accurately applied.
The IRS has provided a handy tracking system to help employers keep up with their credits and ensure they are applied in a timely manner. This system allows employers to view the status of their claims, as well as any potential issues that may arise during processing.
To access this tracking system, simply log into the IRS website using your employer identification number (EIN) and enter the ‘Employee Retention Credit’ into the search box. Once you have accessed the page, you will be able to view any updates or changes related to your claim.
Additionally, if there are any pending questions or unresolved issues, you can submit them through this same portal for review by an IRS representative. By using this tool, employers can easily stay on top of their ERC filing and make sure all applicable credits are being applied correctly and in a timely fashion.
What 941 Worksheets Should I Use to Calculate My Employee Retention Tax Credit?
Figuring out the right 941 worksheets to use for calculating your employee retention tax credit can be tricky, but don’t worry – there’s help!
The IRS has provided five worksheets to assist employers in calculating their ERC. Worksheet 1 applies to qualified sick and family leave wages for leave taken after March 31, 2020, and before April 1, 2021.
Worksheet 2 applies to qualified wages paid after March 12, 2020 and before July 1, 2021. Worksheet 3 is applicable for qualified sick and family leave wages for leave taken after March 31, 2021 and before October 1, 2021.
Similarly, Worksheet 4 applies to qualified wages paid after June 30, 2021 and before January 1, 2022. Lastly, Worksheet 5 is used to calculate the adjusted COBRA premium assistance credit.
It is important that employers use the correct worksheets when filing their taxes so they can receive the full benefit of the ERC program. To ensure accuracy in calculations, it may be beneficial to consult with a tax professional or financial advisor who can provide additional guidance if needed.
Conclusion
Congratulations! You’ve now learned the basics of the Employee Retention Credit and how to calculate it.
Make sure you keep an eye on the upcoming deadline – it’s important to take advantage of this credit before time runs out.
Remember, if you need help filing for or tracking your ERC, there are plenty of resources available to help make the process easier.
With a little bit of work, you can get back some much-needed funds for your business.
Good luck!
