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Last Updated on November 30, 2023
If you’re running a small business that’s eligible for the employee retention credit, you may have questions about how to get it.
This article will cover the basics of the program and how you can maximize your potential benefits.
Employee Retention Credit Application: Who Qualifies in 2023?
Employee Retention Credit (ERC) is a tax credit that rewards businesses that keep their employees in order to avoid paying payroll taxes. The credit is based on qualified wages, which are the salary paid to each employee. This credit is available to eligible employers of all sizes.
Applying for the Employee Retention Credit is actually easier than you may think – and many businesses still qualify for funds from 2021 and 2022.
Find out if your business qualifies:
ERC is a stimulus program that encourages businesses to keep their employees during economic hardship. In the wake of the COVID-19 pandemic, many companies experienced significant losses in gross receipts. For this reason, the federal government introduced the ERC to encourage employers to maintain their staff during the recession.
Originally, the ERC was set to expire in 2022, but it has been extended…It was extended twice. After the Consolidated Appropriations Act of 2021 was enacted in March 2020.
In 2021, the qualifying standards were changed. Businesses that do not qualify as recovery startup businesses will not receive the credit after September 30, 2021. However, there are still some opportunities for recovery startup businesses. These businesses can claim up to $50,000 per quarter.
The credit is also available to certain new businesses that were established after February 15, 2020. To be eligible, these businesses must not have been previously eligible for the ERC or other similar incentive programs. Moreover, they must be able to demonstrate that they were operating during the first two quarters of 2021. Likewise, new businesses must be paying their employees during the third and fourth quarters of the current year.
If you are an eligible business, you may be able to claim up to $28,000. This credit is not available to self-employed individuals or governmental employers.
The American Rescue Plan Act of 2021 provides recovery startup businesses with tax credits. While the credit was initially limited to small companies with less than $1 million in revenue, it was expanded to a larger pool of eligible businesses.
The American Rescue Plan Act also added special requirements for severely financially distressed employers. They are defined as businesses that experienced a significant decline in gross receipts during the calendar quarter. Those employers can claim credit against all of their employees’ qualified wages.
ERC Deadline
If you are an employer that has not yet claimed your employee retention credit, there is still time to apply.
Originally, eligible Employers could claim the Employee Retention Credit for qualified wages that they paid after March 12, 2020, and before January 1, 2021. Therefore, an Eligible Employer could claim the credit for qualified wages paid as early as March 13, 2020.
The deadline has been extended however, and eligible employers can still apply for Employee Retention Credit in 2023, for the years 2020 and 2021.
You can find out if your business qualifies in as little as a few seconds:
How to Obtain the ERC for 2023
The employee retention credit is a federal program that was created to help businesses stay in business during times of economic hardship. This program allows eligible employers to keep some of their employees’ share of social security and Medicare taxes.
It was initially only applicable to employers with more than 100 employees. However, the CARES Act changed that and now it applies to all types of businesses. For example, a small business may now claim the employee retention credit.
The credit is based on the wages paid to eligible employees, including the amount of payroll expense. A qualified employer can earn a maximum credit of $7,000 per quarter for 2021. To determine eligibility, an employer must demonstrate that their gross receipts decreased significantly during a calendar quarter.
In addition, an employer can request an advance payment of the remaining credit amount. However, the advance must be requested by filing Form 7200. There are limits on the advance, as well.
ERTC Express offers expertise on the program and guides employers through the claim process. They have a comprehensive analysis of each claim and offer guidance on the technical details. If you have questions, you can contact the ERC Assistant.
The Employee Retention Tax Credit provides tax relief to companies that lost revenue in 2020 and 2021 due to COVID-19. The credit is equal to 70% of the qualified wages of each employee. Depending on the number of full-time employees in 2019, an eligible business can receive up to $28,000.
The credit has been extended twice since March 2020. First, it was set to expire on January 1, 2022. But Congress passed the American Rescue Plan Act and extended the credit.
In order to qualify for the employee retention credit, a business must have paid its employees during a calendar quarter. However, if the business is shut down because of a pandemic or because of an order from the government, the business is eligible to claim the credit. Specifically, the business must have declined its gross receipts by 20% or more.
How to Reconcile your ERC Form 941
Reconciling your employee retention credit form 941 may be necessary if you have made a mistake in calculating the credit. You can do so by using the corrector tool of your payroll system or by consulting an accountant.
There are five parts of a Form 941. The first three parts are the most important. These sections require your company information on each page. Moreover, you need to indicate whether you intend to correct the form. However, the most confusing lines are the lines 5a-5d.
This is because they combine the totals of your employee and employer’s portions of Social Security and Medicare taxes. It is therefore important to make sure the calculation is correct. Also, you need to provide the date of your mistake. Otherwise, you could face significant penalties.
The Employee Retention Credit was introduced to help businesses keep their employees during the pandemic. However, the law was updated by the Consolidated Appropriations Act and American Rescue Plan. Specifically, this provision made it easier for eligible employers to report the credit on their Form 941.
To claim the ERC, you must first qualify. In order to do so, your business must have a qualified wage base. Wages above the base are not subject to the Social Security tax. Those who qualify can then use the ERC to offset their payroll tax bills.
The ERC can also be claimed on Form 941-X. In addition to indicating whether you intend to claim the credit, you should also check the Part 2 box 5d. When you do this, you will have to explain why the amount is incorrect.
You will also need to calculate the nonrefundable portion of the ERC. In this case, you will be required to show how much you have paid in the previous three quarters. If you did not pay in the previous quarters, then you will have to provide the correct date.
Once you have completed the form, you will need to mail it in to the IRS. Your mailing address can be found in the instructions.
You should consult with an ERC expert if you have any questions. For instance, you may not have reported the correct amount of qualified wages on your Form 941.
How to Maximize Your Potential Credit
The IRS is offering small business owners an opportunity to maximize their employee retention credit. Businesses can claim up to $26,000 per employee, but time is running out. A quick look at your payroll and your company’s operations will help determine whether you’re eligible. However, it’s important to note that these credits can be very complex. To ensure you’re able to take advantage of this opportunity, it’s recommended that you hire an ERC specialist.
In order to qualify for the retention credit, your business must meet five basic criteria. The number of qualified employees is the first factor, followed by the amount of qualifying wages that were paid to those employees during the qualifying period. If you’re having trouble determining your eligibility, you can use the IRS’s ERC Assistant. This software will analyze your company’s ERC eligibility and guide you through the process.
Finally, you need to know that there are some very simple steps to follow in order to take advantage of the Employee Retention Credit. These include calculating your qualifying wages and agglomerating your businesses. Once you’ve done this, you can begin to claim the credit.
Bottom Line
As the deadline approaches, it’s important that you get on board and claim your credit as quickly as possible. With the right information and a team of ERC specialists, you can take advantage of this unique opportunity. It’s one of the best tax savings opportunities available to small businesses, so don’t delay. See if your business qualifies today…
