EMPLOYEE RETENTION TAX CREDIT - How does the ERC work? $26,000 per employee? Is it legit?

welcome back in this video I'm going over the Ultimate Guide to the employee retention tax credit otherwise known as ertc or ERC and I'll be entering all of the common questions about this really great tax credit but there's a lot of scams and bad information out there so in this video you'll be able to learn how the employee retention tax credit Works who qualifies for the credit can I still claim the credit in 2022 2023 2024 can I apply for the ERC myself or who to hire who to ask how to file the 941x form can the owner claim the credit on their wages how long does it take to get my refund I'll be breaking down exactly how you calculate the ERC what qualify sizes wages and so on first let's talk about how does the employee retention tax credit the ERC credit work so this credit gives you back a percentage of the amount you paid your employees during covet times and if you're just realizing now that you qualify for the credit you can file amended returns to take the credit I'll tell you more about that later on and so this credit was created they actually did advances of this credit during covid to help business owners specifically small business owners keep employees on payroll so while I'm here talking about how the credit works I'm just going to summarize some of the details for small businesses but stay tuned I'll cover everything the credit is different in 2020 and 2021 because there were a lot of changes to it throughout coven so in 2020 the credit can be taken for quarters two three and four for up to 50 percent of the wages you paid your employee up to ten thousand dollars in wages so that means that in 2020 you can get a credit of up to five thousand dollars per employee but in 2021 the credit was greatly increased the percentage was raised from 50 to 70 of the wages you paid the employee with the yearly limit of wages of ten thousand dollars being changed to a quarterly limit of ten thousand dollars so that means in 2020 the max credit was five thousand per employee but in 2021 it was seven thousand per quarter for basically a total of 21 000 or less depending on your business this is why you'll see people advertising get twenty six thousand dollars per employee through the ERC 5000 for 2020 and then twenty one thousand for 2021. in 2021 the credit can be taken in quarter one two and three and four but the fourth quarter is only for what's called recovery startup businesses meaning businesses that started during this time period which we'll talk more about later on because they have different rules and they're the only people that qualify for quarter four of 2021. so there are a lot of different rules for large and small businesses and like all things taxes there's just a lot of details but it is a super beneficial credit if you qualify so let's talk a bit more about the details is ERC and ertc the same thing yes they are the same thing this shorter one employee retention credit ERC or there's the longer one employee retention tax credit ertc but they both refer to the same exact credit who qualifies for the employee retention tax credit all types of businesses and non-profits can qualify as long as they pay some workers as W-2 employees that's what this credit is about now the rules are different for large and small businesses with small businesses being defined as those with a hundred full full-time employees or less in 2020 and 500 full-time employees or less in 2021 and we'll talk more about that in another question for small businesses if you're considered small less than 100 or less than 500 in 2021 the credit is far easier to qualify for as the wages you paid your workers simply qualify for the calculation if you're one of the larger businesses if you have over a hundred employees in 2020 or over 500 in 2021 only the wages you paid your employees while they were not working actually qualified so that's the first part of qualifying is did you pay employees are you large or small and then to decide if you qualify each quarter to actually calculate and take the credit you'll need to look at each quarter and identify if one your business was fully or partially shut down due to a government order at any time during the quarter okay if that happened you qualify for that quarter or on the other hand if your business's gross receipts that's your total sales for the quarter decreased by more than 50 percent for any quarter in 2020 or 20 remember it became easier in 2021 when compared to the same quarter in 2019 or the immediate preceding quarter so if you're looking at quarter four of 2020 you're going to say did I have a 50 decrease in sales when compared to fourth quarter of 2019 oh no I didn't okay let's look to the third quarter of 2020. the last quarter did that one go down maybe it did okay and then again in 2021 it's only a 20 decrease in total sales next question what is a recovery startup business what if you started your business during covet is a new business eligible for ERC so yes new businesses can qualify but they have really totally different rules they're called recovery startup businesses rsbs and to qualify the business must have started after February 15th of 2020. primarily available for quarter three and four of 2021. now they must have average gross receipts total sales for the year of less than one million dollars per year now the calculation of the credit for these new businesses is exactly like it was for other businesses in 2021 so it's 70 of employee wages up to 10 000 per quarter per employee but it is limited to 50 000 in quarter three and quarter four on the other hand rsps don't have to meet either of the two tests we talked about of being shut down or a decrease in sales they just have to have paid their employees not have too much in sales and so this is a really awesome piece of the credit that's just for startup businesses from covet can I still apply for the employee retention Credit in 2022 2023 2024. there's no application for the credit it's filed on your payroll tax forms form 941s and the credit is only actually applicable for 2020 quarter two three and four 2021 quarter one two three four with four only being for the rsbs the new businesses however if you just realize that you qualify you can amend the quarter that you qualify by four you have three years from the date you filed your payroll tax form or the date you should have filed your payroll tax form so for 2020 payroll Quarter Two was April May June right it was due by the end of the following months that's July 31st you have until July 31st of 2023 to file an amended return for that quarter and keep in mind that payroll quarters are standard quarters unlike quarterly estimated taxes so don't confuse that so for the following periods you can see they are due here and you can see all the way down to quarter four of 2021 is due January 31st 2025. however you really want to do this as soon as possible and certainly before July if you qualify in Quarter Two claim the employee retention credit all types of businesses can claim the credit including sole Proprietors LLCs corporations Partnerships nonprofits now if you control meaning you own multiple businesses you may need to treat those businesses as one business so we'll talk about that next what are the IRS aggregation rules for ertc so if you own multiple businesses you may need to count them as one for the credit when you're calculating everything about the credit this isn't necessarily A Bad Thing and can work out in your favor or not like all things taxes if you own 50 or more of multiple businesses or if you and four or others or less so five people total or less own 80 percent or more of multiple businesses then that means you either have a subsidiary or brother sister business relationship and that means that the aggregate rules apply and you need to count them as one so this affects first of all counting the number total number of employees but it also affects calculating a decrease in gross receipts the 50 in 2020 or 20 in 2021 and so what happens is one of your businesses might have not qualified while other businesses might have qualified but because you group them together overall you might qualify for all employees even for the business that was never shut down during covid or didn't have a decrease in gross receipts but because you've lumped it in with your other businesses you could qualify for everyone how to count the number of full-time employees for ERC what is considered a full-time employee so full-time employees are those that worked 30 hours or more per week or 130 hours or more per month you'll add up the number you had for each month and then divide the total by 12 and that will give you your or average full-time employees now for other tax rules there's a concept called full-time employee equivalence where we add up your part-time hours and your part-time employees to calculate the full-time employee equivalent number you do not need to do that for ertc so if you had 200 part-time employees only that never met any of this threshold for any month then you have zero full-time employees and your employees qualify for the credit and like we said before this is a big impact for determining if you're the large or small employer and being a small employer is going to be much more advantageous for this credit because all wages you paid your employees qualify for the credit versus once you're a large business only wages you paid your employees while they weren't working actually qualify next question do you have to have five or more employees so no and this question is arising because of these companies they're called ertc Mills or ERC Mills there are companies that are popping up because they are filing this for people there tend to be a bit negligent they want to get the biggest amount for you possible because they're taking a percentage of your refund and so some of these companies are saying oh you have to have five employees for us to take you because we don't really want to work for twenty six thousand dollars we want to work for you know a hundred thousand I'm gonna talk more about these companies in future questions can I apply for ERC myself yes if you have been filing your form 941s yourself you can certainly include the credit on these forms if you use a software or a payroll service for these forms to be filed regularly you want to go talk to whoever normally files these forms for you about them doing the amendment for example Gusto is my favorite Payment Processing software and they have great support you know you can reach out to them and talk to them and um I've done tons of research on payroll processing companies so I do have an affiliate link for Gusto which I'll include in the description below if you want to use them check them out you get a gift card to Amazon if you use my link also if you want to be able to ask me questions while you're doing this yourself stay tuned to the end of this video and I will explain how to get my help with filing these credits how long does it take to get the ERC refund well the census I found is that it's been taking about nine months for the amended payroll tax forms to be processed can the owner claim the retention credit can business owners claim the ERC if you mean you know can owner wages if you have an S corp or a C Corp the owner if they work in the business is required to be paid just like an employee this question actually may need a bigger video but the short answer is no now in a way it makes sense to me that owners wouldn't qualify because the point of this credit was to reward businesses in and help them to keep paying their employees so if the employees are to yourself or to family members then you have a vested interest in paying yourself already you know what I'm saying um and you're typically making a lot more money as an owner of the business or at least you should be how do you receive the employee retention credit filing the payroll tax forms form 941 and you take a credit on the taxes you owe because you as the employer are going to pay 7.65 percent in Social Security and Medicare taxes on your 941 forms and when you fill out this form you're going to get a credit against those taxes you paid which can be refundable meaning you can have a far bigger uh tax credit for the rec ERC then what you owe on the wages you paid your employees do you have to pay taxes on the ERC tax credit is the ERC refund taxable income no the tax credit is not something that if you get this year in 2023 you would report on your income tax return it's not income however it has the net impact of increasing your income tax by the amount of the tax credit and I'll explain this more in this in the next question how does the employee retention credit affect income tax so the credit will result in an increase increase to your income tax and this is because you deduct your payroll costs on your business tax return and you can't deduct amounts that you receive back through ERC or through any sort of program so you'll need to amend your business tax return to adjust your payroll costs to the amounts you received back as the ERC credit so for example if you paid an employee 10 000 and you got ERC credit for seven thousand you would need to amend your business income tax return to change your payroll cost deduction from 10 000 to 3 000 because 7 000 is no longer an expense you got that money back so if you're paying an effective tax rate of 20 20 times 7 000 on income tax means you would need to pay an additional fourteen hundred dollars in income tax but of course you've got seven thousand so this is will still be well worth it to take the credit but there is a bit of work to do for amending and this leads us right into a really important question is the ERC real is the ERC a legitimate company how to watch out for scams the IRS is calling these ERC Mills and they're companies that set themselves up just to file the erc's and the problem is that they are just looking to make a bunch of money and you even filing incorrect tax returns to get you the most money possible because they themselves are charging a percentage fee of the money that you get back and the problem is you as the taxpayer are responsible and if the IRS audits you in a in a few years and finds out that some of the deduction some of the tax credit you weren't qualified for you can end up paying interest and penalties since the time that it took them to audit you you know that's still your responsibility so that's something to be aware of and you know I was even propositioned by a company that said if I promoted them on my Channel all I would need to get is 200 people which would be easy for an audience of my size that went to their company to get the ERC filed by them they said that I would earn a four percent commission of claims equaling get this based on average ERC amounts equaling 1.2 million dollars so they were offering me 1.2 million dollars to make a video to tell you to use this company now I am not telling you to use this company I won't even tell you this company's name because they were also trying to deposit people's refunds into a sub trust account now no one no CPA no tax professional should ever put your refund into any sort of account that they have access to so I recommend avoiding these companies because they aren't going to help you make sure that you're taking the credit right and they aren't going to help you amend your personal tax return to correct your payroll expense like we talked about in the last question and that's also really important to do or you could end up paying a lot more in fines and penalties next question what is included in ERC qualified wages so remember that the credit was based on the percentage of wages that you paid your employee so qualify wages per employee were kept at 10 000 per year in 2020 and then ten thousand per employee employee per quarter in 2021 qualified wages is the amount you paid someone to do their job right if you pay twenty dollars an hour and someone worked 400 hours during the year you'd have paid qualified wages of eight thousand dollars you can also take into account and include in those that pay any amount you paid for health insurance for the employee now you also cannot include any wages that you used for any other payroll based credit or program that's basically reimbursing you for wages paid so that would include wages paid for the qualified paid second family leave credit which gave you a tax credit of up to 10 days of wages paid to an employee when they were not working because of a covid related situation also same with PPP which I'll cover in the next question can I claim ERC if I received a PPP loan how does PPP affect ERC at first you couldn't participate in both programs however this was changed in December of 2020 per the taxpayer certainty and disaster Tax Relief act now you can take the ERC even if you got PPP the only thing is just like we said in the last question you can't include qualified wages for the ERC that were wages that were included for the PPP loan period That's all thank you so much for watching if you're new here my name's Amanda and you're watching the business finance coach where I simplify all the technicalities of business to help you succeed I love small business owners I love to hear what you do and any questions you have down in the comments below if you're new here consider subscribing and also I promise you that I would tell you how I can help you with the ERC since you might be stuck without great options to just get answers to your questions I have a course paying owners and workers and this course goes through exactly how people are paid owning each different type of business as well as how to structure positions for contractors versus employees how to run payroll yourself I recommend using the software Gusto and I teach you how to use it in those trainings I have some cheat sheets and checklists and I will add a portion for the ERC as well and also you get to post questions in the course for one year from your date of purchase and I answer questions in my courses weekly so that's a way that you can ask questions about the ERC if you're trying to file that yourself if I don't already have training in that course about what your question is I will make it that's all thanks for watching again consider subscribing if you're new here or check out some of my other videos that you might find helpful see you next time bye

Channel: Business Finance Coach

Views: 18,851

Keywords: employee retention tax credit, ERC, How does the employee retention tax credit work?, Who qualifies for the employee retention tax credit?, can the owner claim retention credit?, employee retention credit explained, can I apply for ERC myself, recovery start up business, full time employees erc tax credit, Can I take ERC with ppp?, how to calculate erc credit 2020, how to calculate erc 2021, how to calculate erc credit with ppp, can i still get ERC?, ERTC

Id: 9jq89m40ar0

Length: 24min 19sec (1459 seconds)

Published: Fri Feb 03 2023