Everything You Need to Know about IRS Employee Retention Tax Credit – 2023 guide

Everything You Need to Know about IRS Employee Retention Tax Credit – 2023 guide

The IRS Employee Retention Tax Credit (ERC) is a valuable incentive for businesses affected by the COVID-19 pandemic. Implemented as part of the CARES Act in 2020, the ERC is a refundable tax credit that helps companies retain their employees and stay afloat during these challenging times. 

The ERC serves as a lifeline for businesses, particularly in these testing times. Designed to incentivize employers to retain their workforce, it offers a generous tax credit to those who meet the specified criteria. Grasping the ERC goes beyond understanding its mechanics; it involves acknowledging its potential to fortify businesses and safeguard employees. 

In this article, we’ll delve into the ERC, how it works, how to avoid fraudulent services, and how to get an ERC refund. 

What is the Employee Retention Credit (ERC)?

The ERC is a refundable tax credit established in March 2020 as part of the CARES Act to help companies impacted by the COVID-19 pandemic retain their employees and stay afloat. The credit was designed to provide financial relief to businesses that experienced losses due to the pandemic. 

In the beginning, the ERC was applicable only through 2020, but the pandemic relief legislation decided to extend it into 2021. This means that eligible employers can claim the credit up to September 30, 2021. For recovery startup businesses, this means that they can claim the last quarter of 2021, too.

Notes: Unfortunately, the ERC was not extended for 2022 or 2023.

How Does the Employee Retention Credit Work?

The ERC is available to eligible employers who experienced losses because of the COVID-19 pandemic. Eligible employers can claim the ERC for a percentage of eligible wages paid to employees. 

How to Know if You Are Eligible for the Employee Retention Credit?

To qualify for the Employee Retention Credit, your business must have at least one employee and meet one of the following criteria:

  • Your business was required to close, either fully or partially, during a qualifying quarter due to a government mandate.
  • Your business experienced a significant reduction in gross receipts, with a loss of at least 50% in 2020 or at least 20% in 2021, compared to the same quarter in 2019.

Notes: If you are still unsure if you qualify, you can get expert support here

How Much Credit Can You Expect to Receive?

March 12, 2020, to December 31, 2020

The credit equals to 50% of qualified wages for wages paid, up to a maximum credit of $5,000 per eligible employee for 2020. 

First three quarters of 2021

The credit was increased to 70% of qualified wages for wages paid, up to a maximum credit of $7,000 per eligible employee per quarter or $21,000 per employee per year. 

Notes: The final quarter of 2021 can only be claimed by recovery startup businesses.

Can You Still Apply for the ERC in 2023?

While the Employee Retention Credit (ERC) concluded for most businesses on September 30, 2021, there’s still an opportunity to claim the credit retroactively if you meet the eligibility criteria. You have a window of three years from the date of filing your original tax return or two years from the date of tax payment, whichever comes later, to claim the ERC.

3 Employee Retention Tax Credit Updates You Must Know in 2023

The ERC program has been running for a couple of years, and new legislation has impacted who qualifies and how much money employers can expect to receive. These are the three most relevant ERC updates that you need to know in 2023:

  1. ERC and PPP Loans: Can You Get Your ERC if You Received a PPP Loan?

Initially, businesses that received a Paycheck Protection Program (PPP) loan were not eligible to claim the Employee Retention Credit (ERC). However, recent legislative changes have made it possible for PPP loan recipients to also benefit from the ERC. It’s important to note that while you can claim the ERC if you received a PPP loan, you cannot use the same wages covered by the PPP funds to calculate your ERC.

  1. How to Claim the ERC Retroactively?

To claim the ERC for past quarters, you’ll need to file an amendment using Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return, or Claim for Refund. Ensure you provide all relevant information on the form and specify the quarter for which you’re applying. 

Notes: You must submit a separate Form 941-X for each quarter you’re claiming the ERC retroactively. 

  1. How to Avoid Fraudulent ERC Advisors?

If you’ve determined that you’re ineligible for the Employee Retention Credit (ERC) and an advisor tells you otherwise, exercise caution. Always request any relevant certifications from the tax professional you’re working with. Take the time to read reviews and trust your instincts if something doesn’t feel right. Above all, be cautious of payment arrangements where you agree to pay a portion of your ERC upfront. 

How to Get an ERC Refund?

Applying for the Employee Retention Tax Credit (ERC) refund process might seem like a daunting task. But with the right guide, it’s an entirely achievable goal. If you think you are eligible for the ERC but are unsure of the step-by-step process, here’s a comprehensive guide you can follow:

Step 1: Establishing Your Eligibility
Before anything else, you need to establish your eligibility for an ERC refund.

Step 2: Crunching the Numbers for Your Credit
Once you’ve confirmed your eligibility, it’s time to roll up your sleeves and crunch some numbers to compute your credit. Remember, the ERC is a refundable tax credit against certain employment taxes, amounting to 50% of the qualified wages that an eligible employer pays out to employees.

Step 3: Lodging Your Credit Claim
After calculating your credit, it’s time to lodge your claim on your employment tax return. This step involves reporting your total qualified wages and the corresponding health insurance costs for each quarter on the appropriate lines of your employment tax return.

Step 4: Patiently Awaiting Your Refund
Once you’ve lodged your claim, the IRS will swing into action and commence processing your refund. The waiting time for your refund can vary, but it usually takes approximately six weeks.

Notes: Remember that the IRS might decide to audit your claim, so keeping precise records is a must. 

Lastly, if the process feels a tad too intricate or overwhelming, don’t hesitate to seek professional help. At BottomLice Concepts, we are specialists in this field and can guide you to success.

How Can BottomLine Concepts Help You Get Your ERC?

The ERC has undergone several changes through the years it has been running, and it’s a very technical process. This includes how to determine qualified wages, which employees are eligible, and more. Your business’ specific case might require more intensive review and analysis to determine whether you qualify and how much credit you qualify for. The program is complex and might leave you with many unanswered questions.

At BottomLine Concepts, we can help you navigate the complexities of the ERC and ensure that you maximize your savings. Our team of experienced professionals is ready to guide you honestly and efficiently through the process of claiming the ERC credit. 

We offer a free consultation and minimal upfront costs, and we are 100% IRS compliant. All our reporting is completely transparent. With the help of our reliable team, you can get your maximum ERC and benefit from this valuable tax credit. Contact us today!

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