Employee Retention Credit 2024: Can You Still Claim the Tax Credit If You Missed ERC for 2022 or Prior?

October 5, 2023
Employee Retention Credit 2024: Can You Still Apply?

Here's what you need to know:

  • Eligible employers may still be able claim an employee retention credit if they owned a small business and had to partially or fully close because of COVID-19.
  • Your business can claim a maximum credit of 50% of qualifying wages paid to eligible employees from March 13, 2020 to December 31, 2020 and 70% of qualifying wages paid to eligible employees in 2021.
  • The ERC is a refundable tax credit on payroll taxes your company paid.

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

Given that ERC only applies to eligible wages paid in 2020 and 2021, some may be wondering if they may still apply for the ERC. Eligible employers may still be able to claim an employee retention tax credit in 2024 retroactively. However, there is proposed legislation which would set a firm deadline of January 31, 2024 to submit claims for the ERC, even though businesses previously had until April 15, 2024 for ERC attributable to 2020 and until April 15, 2025 attributable to 2021. This legislation passing would mean that businesses that did not file an ERC claim prior to January 31, 2024 would have missed the opportunity.

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

As detailed by the IRS, generally, businesses and tax-exempt organizations that qualify are those that:

  • Were shut down by a government order due to the COVID-19 pandemic during 2020 or the first three calendar quarters of 2021, or
  • Experienced the required decline in gross receipts during the eligibility periods during 2020 or the first three calendar quarters of 2021, or
  • Qualified as a recovery startup business for the third or fourth quarters of 2021.

The decline in gross receipts thresholds, however, changed multiple times during the pandemic.

What wages qualify for the employee retention credit?

Qualified wages will depend on the size of your business, the period in which those wages were paid, the amount of wages paid to the employee, and whether you were unable to provide services due to a suspension or a decline in business as the requirements changed during the pandemic. In 2020, if your business had 100 or fewer employees during 2020, qualified wages may be up to $10,000 per year for each employee. In 2021, if your business had 500 or fewer employees, you can earn up to 70% of qualified wages, up to $10,000 per quarter for each employee.

You may not be eligible for an ERC on wages subject to forgiveness under the Paycheck Protection Program (PPP) or any other tax credit.

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, here are some steps to apply the tax credit to your tax obligations:

Collect your payroll data

Per the IRS, you must collect your payroll data, including:

  1. Average number of employees
  2. Wages subject to FICA reportable on the Form W-2 and certain health care expenses
  3. Whether the employees provided services for wages paid during a suspension of operations or in a quarter where there was a requisite decline in gross receipts
  4. Whether wages were used to claim other tax credit or subject to other programs like PPP

Document whether there was a required decline in gross receipts

  • Based on the IRS, for 2020, you begin qualifying in the quarter when your gross receipts are less than 50% of the gross receipts for the same quarter in 2019. You no longer qualify in the quarter after the quarter in which your gross receipts are more than 80% of the same quarter in 2019.
  • For 2021, the gross receipts for the quarter must be less than 80% of the gross receipts for the same quarter in 2019.
  • For calendar quarters in 2021, you can also use the alternative quarter election rule, which gives employers the ability to look at the prior calendar quarter and compare to the same calendar quarter in 2019 to determine whether there was a decline in gross receipts.

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 you may claim an ERC depends on your payroll documentation.

Calculating employee wages, benefits and other vital information isn’t just important for claiming the ERC, 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 uses Excel for payroll tracking, check out our easily customizable Payroll Reporting templates as a resource. These 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.

This communication is for informational purposes only, is not legal, tax or accounting advice, and is not an offer to sell, buy or procure insurance.

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