You may be able to claim ERC and receive a credit for your qualified wages from March 13, 2020 through December 31, 2020.
Knowing all the details will help you get the most out of this tax benefit.
In this article, we’ll cover everything you need to know about ERC requirements for 2020—from eligibility criteria to how the credit is applied.
2020 Eligibility
You may be eligible for the Employee Retention Credit (ERC) if your business has experienced full or partial suspension of operations due to government order, or a significant decline in gross receipts, due to COVID-19. Keep in mind that hours of operations or capacity restrictions qualify as well as a change in operations, such as pick up or drive thru only for restaurants.
To qualify, the employer must have had full or partial suspension of operations during any quarter due to a government order related to COVID-19, or had gross receipts that were less than 50% of the same calendar quarter in 2019 and not more than 80% of the same calendar quarter in 2019.
The ERC is available from March 13th 2020 through December 31st 2020.
Eligible employers will receive a tax credit equal to 50 percent of qualified wages paid up to $10,000 per employee per year.
Employers can use this credit against certain payroll taxes they owe and potentially receive money back from their quarterly payroll tax filings.
Qualified Wages
Employers can take advantage of the Employee Retention Credit to receive up to 50% of qualified wages for their employees, providing much-needed relief during this difficult time.
Qualified wages include those paid from March 13th through December 31st, 2020 and are based on the size of the business in 2019. Specifically:
- For businesses with 100 or fewer average full-time employees in 2019, both wages paid to employees providing services and not providing services are eligible for the credit. The business can have UNLIMITED part-time employees.
- For businesses with more than 100 average full-time employees in 2019, only wages paid to employees not providing services qualify for the credit.
- Additionally, up to $10,000 per employee is available, including certain health care expenses.
This credit provides a unique opportunity for employers to recoup some of their costs while still taking care of their employees’ needs during a time when many businesses have been significantly affected by COVID-19 restrictions and closures. ## Credit Maximum for 2020 The maximum credit you can receive in 2020 is $5,000 per employee. This number applies to each individual employee and cannot be exceeded.
Government Order
Businesses suddenly found themselves shuttered, unable to open their doors due to a government order. For businesses that have had to close or reduce hours because of a COVID-19 related government order, they may be eligible for the Employee Retention Credit (ERC) in 2020. This credit applies only for the portion of the quarter when they were closed or reduced hours, not necessarily for the entire quarter.
The IRS lists certain types of businesses that generally do not meet this description and wouldn’t qualify, such as essential businesses that are still able to operate largely as normal through telework. However, any business can still qualify for the ERC if they meet the second requirement set by the IRS.
Business owners should inquire with their ERC tax specialist about how to apply and what documents need to be submitted in order to take advantage of this credit.
You Can Still Claim ERC Today
You can still claim the Employee Retention Credit today, even if you missed out on it earlier in the year; don’t miss out on this great opportunity!
Eligible employers may file an adjusted employment tax return within the deadline set forth in the corresponding form instructions to claim for prior quarters. For example, if you file a Form 941-X, you’ll have time to file an adjusted return before the time set forth under the ‘Is There a Deadline for Filing Form 941-X?’ section in Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.
If you filed Form 941-X to claim the Employee Retention Credit, you must reduce your deduction for wages by the amount of the credit and may need to amend your income tax return (e.g., Forms 1040, 1065, 1120).
Review Notice 2021-20 and Notice 2021-49 documents as additional resources and ensure you don’t miss out on this worthwhile opportunity.
How the Credit is Applied
Claiming the Employee Retention Credit can mean a significant refund for businesses, so it’s important to understand how the credit is applied. The ERC applies to your portion of the employee’s Social Security taxes and is fully refundable. This means that if your credit exceeds your total liability of the portion of Social Security in any quarter, you will receive a refund.
Here are some key points about how the credit is applied:
- The ERC applies to your portion of the employee’s Social Security taxes and is fully refundable.
- If your credit exceeds your total liability for payroll taxes, you’ll receive a refund.
- You must file Form 941 with the IRS quarterly to claim the ERC. – Claiming this credit requires careful consideration and record-keeping throughout the year.
- Employers may be eligible for other tax credits or deductions in addition to claiming this one.
How to Claim ERC for 2020
Now that you know how to apply the Employee Retention Credit, it’s time to learn how to claim it for 2020.
To claim the credit, you’ll need to calculate your total qualified wages and related health insurance costs for each quarter of the year. Then, subtract that amount from your deposit on Form 941.
If you’ve already filed your taxes for 2020, you can still retroactively claim the credit by filling out Form 941-X.
Small employers with 500 or fewer full-time employees in 2019 may even request an advance payment of the credit using Form 7200. However, employers with more than 500 employees are not eligible for advance payments.
Conclusion
You understand the ERC requirements for 2020 and how to claim it.
Now, you can make sure your business is eligible to receive this valuable credit.
The IRS has set a maximum of $5,000 per employee for 2020, so be sure to take advantage of this benefit while it’s still available.
With the right preparation, you can maximize your tax savings and put more money back into your business.
Don’t wait any longer – take action today to get the most out of the Employee Retention Credit program!