The Employee Retention Credit (ERC) was introduced as a part of the CARES Act to help employers keep their workers on the payroll during the COVID-19 pandemic. The ERC has been extended several times, so there’s still time to claim it! Start a search today to find out how to apply.
What is the Employee Retention Credit?
The ERC provides eligible employers with a refundable tax credit that can help offset their Social Security tax liability. Originally, the credit was calculated as 70% of qualified wages paid to employees between March 12, 2020, and December 31, 2021.
The Employee Retention Credit Program has been extended several times since its introduction in March 2020. The most recent extension was signed into law in December 2021 and allows eligible employers to apply for the credit in 2023.
However, there are some changes to the credit for 2023. The credit rate has been reduced to 40% of qualified wages, down from 70% in 2021. In addition, the maximum credit amount has been reduced to $50,000 per quarter, down from $70,000 in 2021.
Eligibility for the Employee Retention Credit
To be eligible for the ERC, employers must meet one of two criteria. First, the employer must have had to fully or partially suspend operations due to COVID-19 due to governmental authority.
Second, the employer must have experienced a significant decline in gross receipts, meaning a decline of 20% or more in gross receipts for a quarter in 2020 compared to the same quarter in 2019. Making false claims about your company’s eligibility can result in stiff penalties.
Employee Retention Credit 2023 Application
To apply for the employee retention credit online, eligible employers must report it on their federal employment tax returns, typically using Form 941-X. The credit can be used to offset the employer’s share of Social Security tax on the quarterly employment tax return.
However, if the credit exceeds the employer’s share of Social Security tax, the excess credit is refundable. It’s important for eligible employers to understand the process of claiming the ERC, as it can be a valuable tool for reducing tax liability and providing financial relief.
Consult With Your Tax Advisor
The Employee Retention Credit has been an important tool for eligible employers to keep their workers on the payroll during the COVID-19 pandemic. With the credit still available in 2023, employers who qualify should take advantage of the opportunity to apply.
The changes to the credit rate and maximum credit amount should be taken into account when considering whether to apply for the credit. Employers should consult with their tax advisors to ensure they are eligible and to properly claim the credit.