How to Apply for the Employee Retention Credit
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The Employee Retention Credit (ERC) is a refundable tax credit for employers that keep their workers on the payroll during the COVID-19 pandemic. If you’re eligible, you can claim the credit for each qualifying employee that you retain.
In this blog post, we’ll show you how to apply for the Employee Retention Credit. We’ll cover the eligibility requirements and how to calculate the credit. We’ll also provide some tips on how to maximize your chances of getting
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Introduction
The Employee Retention Credit (ERC) is a refundable tax credit for eligible employers that retain their employees during the COVID-19 pandemic.
The credit is available to eligible employers that keep their employees on the payroll, even if those employees are not working. The credit is also available to eligible employers that are experiencing a full or partial suspension of operations due to the coronavirus pandemic.
To be eligible for the credit, an employer must meet certain criteria with respect to its business operations and its workforce. In addition, an employer must have experienced either a full or partial suspension of its operations due to an order from a governmental authority limiting commerce, travel or group meetings due to the coronavirus pandemic; or a significant decline in gross receipts during the calendar quarter in which the suspension of operations began when compared to the same calendar quarter in the prior year.
The amount of the credit is 50% of qualifying wages paid to eligible employees, up to $5,000 per employee. Wages taken into account for purposes of calculating the credit are capped at $10,000 per employee for all calendar quarters. The credit is allowed againstMessages can be reviewediMessagee.”);
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What is the Employee Retention Credit?
The Employee Retention Credit is a refundable tax credit for eligible employers of all sizes that retain their employees during the COVID-19 pandemic.
To be eligible, an employer must:
-Have been carrying on a trade or business during 2020; and
-Have experienced an economic hardship due to the COVID-19 pandemic.
If the employer meets both of these requirements, they may claim the credit for each eligible employee. The maximum credit that an employer can claim is $5,000 per employee.
How to Apply for the Employee Retention Credit
The Employee Retention Credit is a refundable tax credit for employers that are experiencing financial hardship due to the COVID-19 pandemic. If you are eligible for the credit, you can claim it on your quarterly employment tax return. The credit is equal to 50% of eligible wages paid to employees, up to $5,000 per employee. In order to apply for the credit, you must first file Form 941 for the quarter in which you want to claim the credit. You will then need to complete and attach Schedule R to your Form 941.
Step One: Determine Eligibility
The credit is available to all employers regardless of size, including tax-exempt organizations, as long as they carry on a trade or business during 2020 and did not receive a Small Business Interruption Loan under section 7(a) of the Small Business Act.
To be eligible, employers must have experienced either:
-A full or partial suspension of operations due to an order from an appropriate governmental authority limiting commerce, travel or group meetings (for commercial, social, religious or other purposes) due to COVID-19; or
-A significant decline in gross receipts during the calendar quarter in comparison to the same calendar quarter in 2019.
Gross receipts are generally total revenue received before subtracting cost of goods sold and other business expenses. If you are a seasonal employer or started your business operations in 2019, you may compare your gross receipts for any calendar quarter in 2020 with your average quarterly gross receipts for 2019. If you do not have 2019 gross receipts because you were not in operation, you instead may compare your 2020 quarterly gross receipts to those of the same calendar quarter in 2020.
Step Two: Calculate the Credit
You may be eligible for the Employee Retention Credit if you are an eligible employer whose business has been impacted by COVID-19. The credit is a refundable tax credit for up to 50% of qualified wages (including allocated health care costs) paid by an eligible employer to certain employees during the coronavirus pandemic.
To calculate the credit, you will need to determine your average number of full-time equivalent employees (FTEs) for 2019. To do this, add the total number of hours of service for all employees in 2019, divided by 2,080. Do not include hours of service of any employee who was not employed at any time during 2020. If you have questions about how to calculate FTEs or have previously used a different method, please see the guidance on calculating FTEs.
Once you have determined your average number of FTEs, you will need to calculate your qualified wages. For more information on how to calculate your qualified wages, please see the guidance on calculating qualified wages.
Step Three: Claim the Credit
Now that you have completed the first two steps of figuring out whether you are eligible and have determined the amount of your credit, it is time to claim the credit. The employee retention credit is claimed on your quarterly Form 941, Employer’s Quarterly Federal Tax Return.
You will need to complete Schedule R, which is attached to Form 941. On Schedule R, you will enter the amount of the credit that you are claiming for the quarter. Be sure to keep good records of your calculations in case the IRS has any questions.
If you are claiming the employee retention credit for wages paid in 2020, you will need to file an amended Form 941 for the first three quarters of 2020 to take advantage of the credit. You can file Form 941-X electronically using IRS e-file. Include Schedule R (Form 941), Employee Retention Credit with your amended return
Conclusion
To sum it up, the employee retention credit is a refundable tax credit for eligible employers that retain their employees during the COVID-19 pandemic. To be eligible, employers must have experienced either a full or partial shutdown of their business due to COVID-19, or a significant decline in gross receipts. If you think you may be eligible for the employee retention credit, we encourage you to speak with your tax advisor to discuss your specific situation.
