If you are a small business owner looking for an opportunity to take advantage of ERC tax credits, then you might want to consider working with a company that offers ERC Specialists. By employing these professionals, you will be able to apply for the credit in a shorter amount of time.
ECR Credit Specailists Helpline: (888) 222-1286
Employers may include wages paid to part-time and full-time employees in the calculation of the ERC
An ERC (Employee Retention Credit) is a tax credit available to businesses that wish to retain key employees during tough economic times. The credit is equal to 50% of qualifying wages paid to each employee through 2021. It may be claimed as a Business Expense or a refund, and the money is not taxable to the employee.
There are several steps employers must follow in order to claim this credit. First, they must ensure their employees meet the IRS definition of a full-time employee. This requires an average of at least 30 hours of work per week. Employers also have to verify that their calculations are accurate. If they aren’t, they can’t claim the credit.
There are two primary methods of counting full-time employees. One method is the look-back measurement method. Using this method, the employer calculates whether an employee is full-time for the future measurement period by counting the hours they worked in the prior measurement period. Another method, the monthly measurement method, is used to determine whether an employee is full-time for the current measurement period.
Regardless of the method, an employer must file an IRS Form 1094-C. This form counts the number of full-time and part-time employees at the end of each month. During the qualifying period, an employer must pay qualified wages to employees who aren’t providing services. Wages paid to owners and majority owners of a business are not eligible for the credit.
In addition, some government employers are not eligible for the credit. These include wages paid under the Families First Coronavirus Response Act, or FFCRA. Qualifying wages can include pre-tax employee contributions, health plan expenses, and a portion of the group health plan costs.
A large employer is defined as having more than 500 full-time employees. Small employers are defined as having fewer than 100 FTE employees.
For ERTC, eligible wages are capped at $10,000 per quarter. Qualified health plan expenses can be counted, but employers can only claim a credit of up to $10,000 on their first $10,000 in health plan costs. However, if they receive a PPP loan, the credits can be calculated on the total amount of wages paid.
Wage expenses utilized in the ERC calculation
A refundable payroll tax credit, known as the Employee Retention Credit (ERC), is available to eligible employers. ERC is designed to reduce payroll taxes, encourage firms to keep employees on the job and minimize claims for unemployment compensation. The benefit can be up to $26,000 per employee in 2021.
To qualify for the ERC, an employer must pay qualifying wages during the calendar year. Qualified wages include wages paid to full-time employees and wages paid to part-time employees. Depending on the employer, health insurance expenses related to the employee may also be included in the calculation. However, employers must report these costs on quarterly employment tax returns.
In order to be able to claim the ERC, an employer must submit a Form 941, Quarterly Employment Tax Return, for the calendar quarter in which the credit is claimed. Qualifying salaries are reported on a Form 941. Those who qualify for the ERC should check with professional advisors for advice on which income and payroll taxes to claim.
In the case of a small firm, all wage expenses are considered in the ERC computation. Small firms are defined as those that have less than 100 regular full-time employees. For 2020 and 2021, the Gross Receipts Test is used. This test is based on gross receipts of less than 80%.
If a business is expected to receive an ERC, the business may have reduced deposits in its cash account. It is important to determine the status of a firm and request ERC status as soon as possible. Although the statute of limitations on the 2020 ERC has not closed yet, it is a good idea to take advantage of the credit before the end of the tax filing period.
Businesses that were expecting to receive the ERC in 2020 or 2021, but that did not, are still able to claim the ERC for that year. Business owners who were forced to suspend operations, limit business hours or suspend services are also eligible for the ERC.
Employers can also claim the ERC for the qualified wages they paid to their employees from March 13, 2020 through December 31, 2020. These wages are not subject to the payroll tax deduction rules of IRC Section 280C.
PPP loans can also fund non-wage expenses
The Paycheck Protection Program (PPP) is a federally funded program that is designed to help small businesses and their employees get back to work and off the unemployment line. In order to qualify, the business must meet certain requirements. Generally, the funds from a PPP loan will be used to pay for qualifying payroll and benefit expenses.
However, there are other ways a PPP loan can help a business. One is by using the money to offset non-payroll costs. For instance, if a business is self-employed and files Form 1040 Schedule C, the loan amount can be used to cover proprietor expenses. Another example is if an employee receives paid sick leave.
When it comes to reducing expenses, a borrower can use the loan to decrease headcount. This can help the business avoid layoffs and save cash. However, a lower headcount can also add financial strain to the business. If a borrower is able to decrease their workforce, the company can lose some of the forgiveness they might receive.
A borrower can also ask their lender to renegotiate the maturity of the loan. For loans made after June 5, 2020, borrowers can request a deferral of payments. During this deferral period, interest continues to accrue. It is important to keep accurate books and records to ensure that you are able to repay the loan.
While there are many other benefits of a PPP loan, the one that will get you the most forgiveness is if you can get your employees back to full wages. There are several requirements that you need to meet to be eligible for forgiveness.
First, the CARES Act requires that 60% of your loan be spent on payroll and other qualifying expenses. However, there are also rules for qualifying non-payroll costs. These include the following:
As with all PPP Loans, a borrower must meet the minimum criteria to obtain forgiveness. A good way to see whether you meet these qualifications is to calculate how much of your loan you will need to spend on payroll and benefit expenses. You can do this by reviewing the table on the PPP Schedule A Worksheet.
ERC Specialists can expedite the application process
There is a large backlog of IRS tax filings, but it is not due to a lack of taxpayers. It is due to major logistics problems, primarily related to staff shortages and amended returns.
If you are struggling to get your ERC, or if you have been waiting for a refund for months, you may need to speak to an expert. Adesso Capital can help you get the most out of your claim. They will assist you with all the paperwork and keep you updated on the progress of your filing. Their team of CPAs and tax experts is ready to help you claim your maximum return.
The Employee Retention Credit was created to encourage businesses to retain employees. It provides a credit that can offset the lost revenue of businesses that have had a significant decline in gross receipts due to a pandemic.
However, filing for the ERC can be a complicated process. This is because the program has undergone a number of changes. You will need a number of documents and payroll information to ensure that you claim the credit correctly.
The first document that you will need to complete is an ERC application. It will ask you a series of questions about your company and the ERC program.
You will also need an ERC Employer Agreement Form and an ERC Employee Information Form. Both forms must be signed by the employer and the employee. These documents will be submitted along with your other ERC documents.
You should expect to wait at least six to eight months to receive your ERC check. This can be frustrating for a business, especially when it has not yet been processed by the IRS. Fortunately, lawmakers are putting pressure on the IRS to prioritize claims.
Expert assistance can simplify the filing process and minimize your workload. To start your free consultation, visit our website at www.ERCSpecialists.com. We provide expert assistance for small business owners in determining their eligibility for the ERC and helping them to claim their maximum refund.
You can also consult with your own C.P.A. or lawyer, but remember that the ERC is not a loan.
How does an Eligible Employer claim the Employee Retention Credit for qualified wages?
Eligible Employers will report their total qualified wages for purposes of the Employee Retention Credit for each calendar quarter on their federal employment tax returns, usually Form 941, Employer’s Quarterly Federal Tax Return. Employers also report any qualified sick leave and qualified family leave wages for which they are entitled to a credit under FFCRA on Form 941. The Form 941 is used to report income and social security and Medicare taxes withheld by the employer from employee wages, as well as the employer’s share of social security and Medicare tax.
In anticipation of receiving the Employee Retention Credit, Eligible Employers can fund qualified wages by: (1) accessing federal employment taxes, including withheld taxes that are required to be deposited with the IRS, and (2) requesting an advance of the credit from the IRS for the amount of the credit that is not funded by accessing the federal employment tax deposits, by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
For more information, see Deferral of employment tax deposits and payments through December 31, 2020.
The IRS recently posted Frequently Asked Questions addressing the employer’s ability to defer the deposit of all of the employer’s share of social security taxes due before January 1, 2021 under section 2302 of the CARES Act and reduce other employment taxes required to be deposited in an amount equal to the FFCRA sick leave and family leave credits and the Employee Retention Credit.
Example: Employer E paid $10,000 in qualified wages (including qualified health plan expenses) and, after deferral of the employer’s share of social security tax, is otherwise required to deposit $8,000 in federal employment taxes for all of its employees for wage payments made during the same quarter as the $10,000 in qualified wages. Employer E has no paid sick or family leave credits under the FFCRA. Employer E may keep up to $5,000 of the $8,000 of taxes Employer E was going to deposit, and it will not owe a penalty for keeping the $5,000. Employer E will later account for the $5,000 it retained when it files Form 941, Employer’s Quarterly Federal Tax Return, for the quarter.
This FAQ is not included in the Internal Revenue Bulletin, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.