The Employee Retention Credit (ERC) has provided invaluable financial support to many businesses post-COVID-19, encouraging them to retain employees and continue operations. If your business is organized as an S corporation, you must report the ERC correctly on your Form 1120S. In this blog post, we’ll provide a step-by-step guide to help you understand the process and claim the credit while complying with IRS regulations.
Step 1: Determine Your Eligibility
The first step is determining if your business is eligible to claim the ERC. To be eligible, you must meet all of the following requirements:
- You must be an employer.
- You must have paid qualified wages to employees during the covered period.
- You must have experienced a significant decline in revenue during the covered period.
Step 2: Calculate Your Credit
Once you have determined that you are eligible to claim the ERC, you need to calculate the amount of your credit. The credit equals 70% of the qualified wages you paid to employees during the covered period, up to a maximum credit of $7,000 per employee per quarter in 2021 and a credit of up to $5,000 for 2020.
The covered period is when your business experienced a significant decline in revenue. The decline in revenue must be at least 20% compared to the same period in the prior year.
Qualified wages are wages that are paid to employees who are:
- Full-time employees
- Part-time employees
- Employees who were paid wages that were not subject to the salary reduction required by the CARES Act
Step 3: Report Your Credit on Form 1120S
To report your credit on Form 1120S, you must complete line 13g. This line is for reporting “Other Credits.” In the space provided, you will need to enter the amount of your ERC. You must also attach Form 5884, the Employee Retention Credit Form, to your return.
Form 5884 requires you to provide information about your business, employees, and revenue. You will also need to calculate the amount of your credit and enter it on the form.
Step 4: File Your Forms
Once you have completed Form 1120S and attached Form 5884, you need to file them with the IRS. You can file electronically or by mail.
Accurately reporting the Employee Retention Credit on Form 1120S is essential to ensure compliance and maximize your eligible tax benefits. Following this step-by-step guide and maintaining thorough documentation, you can navigate the process and benefit from this valuable credit. Consult a tax professional for personalized advice tailored to your S corporation’s specific circumstances.
Bottom Line Concepts Helps S-Corps Claim the ERC
If you’re an S-Corp and want to receive the ERC for wages paid in 2020 and the first three quarters of 2021, you must file Form 112OS. It’s important to note that determining eligibility and calculating the amount of tax credit can be quite complicated, and it’s crucial to submit the forms to the IRS with complete accuracy to receive the credit you’re entitled to.
Over 25,000 businesses, many of them S-Corps, have been assisted by Bottom Line Concepts with enrolling in the ERC program. Contact us today to determine your eligibility and learn more about how to claim this beneficial credit you may be entitled to.