Employee Retention Credit 2023: Can You Still Claim the Tax Credit If You Missed ERC for 2022 or Prior?

October 5, 2023
Employee Retention Credit 2023: Can You Still Apply?

Here's what you need to know:

  • Eligible employers can still claim an employee retention credit if they own a small business and had to partially or fully close because of COVID-19.
  • Your business can claim a maximum credit of 50 percent of qualifying wages paid to staff in 2020 and 70 percent in 2021.
  • However, they must be permanent, full-time employees on the payroll, which excludes suppliers and contractors.
  • The tax credit is deducted from the taxes you owe as a business and is refundable.

With the employee retention credit 2022 deadline behind us, those who missed it may be wondering if ERC tax credit eligibility 2022 might still apply in 2023. In fact, many who bypassed the opportunity in 2021 had never even questioned is ERC available for 2022. Others simply did not know how to apply for ERC in 2022, and with whatever pandemic-related fallout they may have been wrangling, they never got back to it. So, can you get ERC for 2022 now that we’re in 2023?

Good news: Eligible employers can still claim an employee retention tax credit in 2023 if they own a small business and had to partially or fully close because of COVID-19. If you haven’t filed for this credit yet but want to relieve your financial burden for 2023, there’s still a window to save.*

Employee retention credit 2023 aligns with ERC for 2022

Within the context of qualifying timelines, your business can claim a maximum credit of 50 percent of wages paid to staff in 2020 and 70 percent in 2021. However, they must be permanent, full-time employees on the payroll, which excludes suppliers and contractors.

The tax credit, also commonly referred to as ERTC or simply RTC, is deducted from the taxes you owe as a business and is refundable.

Here’s what we know about eligibility and deadlines for ERC and whether we’ll see this tax credit again in the near future.

Is it too late for me to claim the employee retention credit?

It is still possible for you to claim the ERC because the original program allowed businesses to claim this credit for three years. This means you can claim qualifying 2020 expenses until April 15, 2024, and 2021 expenses by April 15, 2025.

There is one exception: recovery startup businesses had a January 1, 2022, deadline under the Infrastructure Investment and Jobs Act.

Given the rapidly approaching deadline, it may be a good idea to get a jump-start on tax season with your tax professional to ensure that filing for the credit makes sense for your business.

Am I eligible for the employee retention credit?

Before you apply for an employee retention credit, you must check whether you are an eligible employer.

Eligibility qualifiers include:

  1. Your business needed to be partially or fully non-operational because of the COVID-19 pandemic.
  2. Your business experienced a decline in gross receipts as officially defined. This is often referred to as the “gross receipts test,” and it’s critical for determining your ERC eligibility.
  3. Your supply chain and vendors were affected by the pandemic, meaning production and productivity were heavily slowed down.
  4. You were unable to offer the same number of services or products as you used to.
  5. You could not visit your clients on-site due to the restrictions imposed by government order.
  6. You could not travel for business because this was restricted by government order.
  7. Business operating hours were heavily affected during either 2020 or 2021.

It’s important to note that having experienced a lockdown is not a marker of ERC eligibility. Business operations must have been affected by a government order.

What wages qualify for the employee retention credit?

Your business or organization size is what will determine the wages that qualify for the credit. For instance, if your business had more than 100 permanent employees during the 2020 period, qualified wages can be as high as $10,000 for each employee laid off.

In 2021, the employee count was expanded to 500 employees or fewer. And, you can earn up to 70 percent of wages. With that said, the amount will include only what you would pay the employee during the last 30 days before business closure. This includes both salaries and healthcare costs.

There are some exceptions to consider:

  • If you are an employer that is currently a loan recipient of the Paycheck Protection Program provision of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, you will not be eligible. If you have been granted a tax credit for paid sick leave under the Families First Coronavirus Response Act, you are no longer eligible for ERC. This also applies to employees who receive a Work Opportunity Tax Credit under section 51 of the Internal Revenue Code.

What does the application process entail?

The employee retention tax credit must be filed through IRS Form 941-X. This is a quarterly form that should be submitted the month after each fiscal quarter. However, you can add this form as an amendment for underreporting or overreporting estimates based on the credit with your annual federal returns.

If you’re eligible, there are three simple steps to apply the tax credit to your 2022 or 2023 taxes:

Collect your payroll data

Because the ERC caters to full-time employees, you must collect your payroll data.

Information you need includes:

  1. Current eligible employees who qualify for the ERC.
  2. Details about those who left the company and when, to determine whether it was during the COVID-19 pandemic.
  3. Collect all PPP loan papers, which include the date that the loan was given and the amount. You cannot use the same wages listed under the PPP loans. However, the loan does not disqualify you from claiming an RTC.

Compile the 2019 full-time employee information

Having collected the payroll data, you’ll have to gather information on all the full-time workers who worked 20 hours per week in 2019. Information you need regarding the employees includes:

  1. Workplace name and address.
  2. When your employee started and last worked for the company.

Collect 2019 and 2020 sales and revenue

The employee retention credit requires money from sales collected from 2019 to 2020. Remember that your net income, loss and number of permanent employees determine the amount of credit computation.

It’s essential to ensure that you collect as much accurate information as possible to benefit the most from the ERC.

How do I calculate the ERC amount to be granted?

The total qualified wages and health plan expenses paid for each employee amount to the ERC granted.

ERC for 2020 = 50 percent of 2020 qualified wages.

ERC for 2021 =70 percent of 2021 qualified wages.

Note that maximum credit amounts per quarter may apply. In addition, wages used for PPP loan forgiveness are not eligible.

Will the ERC be reinstated?

The ERC may be making a comeback with the Employee Retention Tax Credit Reinstatement Act — H.R.6161. The proposed bill, introduced in the Senate in 2022, still needs to pass the Senate, House and president.If this bill passes, eligible businesses may be able to continue to claim an ERC refund for a specified time.

*Employers filing for ERC in late 2023 may experience the effects of a September Internal Revenue Service moratorium on the processing of new claims through year's end or beyond. The IRS cites “rising concerns about a flood of improper Employee Retention Credit claims” and suspicions surrounding aggressive marketing and promotion by people working in industries by which they’ll benefit from their clients pursuing the ERC.

Why an organized payroll system is vital

The topic of this article is rather unique. Yet it’s a prime example of how the importance of accurate and efficient employment recordkeeping presents in circumstances that exceed business norms. In this case, the key to determining whether or not you should or can claim an ERTC on your 2022 or 2023 amended or current return hinges on your payroll documentation.

Calculating employee wages, benefits and other vital information isn’t just important for claiming the RTC, but also for a snapshot of cash flow any time. For these purposes and more, having an organized payroll system or software can help you stay on track.

If your team is attached to Excel for payroll tracking, check out our easily customizable Payroll Reporting templates. Professional-grade templates can help you improve accuracy and streamline reporting. That makes it easier to make decisions when it comes to hiring, retention and tax season.

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