How to Apply for the Employee Retention Credit in 2023

If you’ve been following the Employee Retention Credit (ERC), which is a credit for companies that kept employees on the payroll in 2020 and 2021, you may be somewhat confused about your potential eligibility and how long you have to file for it. For example, a common misconception is that because the ERC was terminated effective September 30, 2021 (except for Recovery Startup Businesses) by the Infrastructure Investment and Jobs Act, it’s no longer possible to claim the ERC. This is an inaccurate assumption–you can retroactively claim it for your business for 2020, 2021, or both.

Before applying for the ERC in 2023, follow these two steps:

1. Verify your eligibility

Before applying for the Employee Retention Credit, verify your eligibility by making sure you pass the gross revenue or suspended operations tests. Under the gross revenue test, you can be eligible if your revenue decreased by at least 50% for any quarter in 2020 or 2021 compared to the same quarter in 2019. If you don’t qualify under the gross revenue test, use the suspended operations test. To qualify using this test, you must have partially or fully closed your business because of a government order. The government order must have been enacted because of COVID-19, and your business must have been affected by at least 10% or more of your total receipts or service hours worked.

2. Calculate your qualified wages

If you’ve determined you’re eligible through either of these tests, you need to calculate your qualified wages. This includes wages paid during ERC-eligible quarters in 2020 and 2021. The amount of your ERC depends on two factors: your amount of qualified wages and the size of your company:

2020 (100 employees or fewer): You can claim up to 50% of wages paid to working and non-working employees during the ERC-eligible quarters.
2020 (over 100 employees): You can only claim 50% of wages paid to non-working employees during ERC-eligible quarters.
2021 (500 employees or fewer): You can claim up to 70% of wages paid to working and non-working employees during ERC-eligible quarters.
2021 (over 500 employees): You can only claim up to 70% of wages paid to staff who didn’t work during eligible quarters.

Claiming the ERC in 2023

After these two steps and not having previously claimed the ERC for any qualifying quarter, you can claim the ERC by filing an adjusted quarter payroll tax return (IRS Form 941X) for each quarter you qualify. You must decrease your deductible wages on your tax return by the amount of your ERC. Also, be sure to document your eligibility in the event the IRS checks your claim for the ERC credit.

Let Bottom Line Concepts help

If you’re unsure of the steps outlined above concerning verifying your eligibility and calculating your qualified wages, or anything else related to claiming the Employee Retention Credit, Bottom Line Concepts can help. We’ve already helped over 16,000 businesses enroll and recovered over $2.9 billion in credits. Apply for the ERC in 2023. Find out if you qualify today.