The CARES Act was passed in order to help Americans keep their jobs during the COVID-19 pandemic.
The Employee Retention Credit was created as part of this act, and it offers a tax credit to employers who keep their workers on the payroll. The credit is worth 50% of qualified employee wages, up to $10,000 per employee per year.
This means that the maximum credit an employer can receive is $5,000 per employee per year. The credit is available for wages paid from March 13, 2020, to December 31, 2021. The Employee Retention Credit has been updated for 2021, increasing the percentage of qualified wages to 70%.
The per employee wage limit has also been increased from $10,000 per year to $10,000 per quarter. This update will help more employers retain their employees during the pandemic.
Why is it important to understand your employee retention credit eligibility in 2023?
As an employer, it’s important to know if you’re eligible for the employee retention credit (ERC) so you can plan accordingly for your business.
The ERC is a tax credit that is available to employers who retain their employees and continue to pay them during periods of economic downturn.
To be eligible for the ERC, an employer must have experienced a significant decline in gross receipts or been subject to a government shutdown order. In addition, the employer must have maintained its workforce at 80% of its pre-downturn level. If an employer meets these criteria, it may be able to claim a credit against its payroll taxes equal to 50% of the wages paid to employees during the period of economic hardship.
The ERC can be a valuable tool for employers struggling to keep their businesses afloat during tough economic times. Understanding your eligibility for the ERC can help you make informed decisions about how to best support your employees and maintain your business operations.
➤ Most importantly, it’s time-consuming to not know certain info when filing government paperwork; think DMV when not going prepared with your docs. Everything takes 4x longer + doesn’t work
The State of ERC with President Biden
On March 31st, President Biden signed the Infrastructure Investment and Jobs Act into law, which included a provision to extend the Employee Retention Credit sunset date from 12/31/2021.
This credit is a form of coronavirus aid that is available to businesses that have been affected by the COVID-19 pandemic and helps to offset the cost of retaining and rehiring employees. The extension of the credit will help many small businesses and even many corporations keep their doors open and workers on the payroll during these difficult times.
Recovery Startup Businesses are also eligible for the credit amount, but their sunset date remains 12/31/2021. For more information on how to claim the credit, please visit the IRS website.
➤ Eligible businesses can still apply for stimulus funds based on their financials between 3/13/2020-9/30/2021. This extension will provide much-needed relief to businesses that are still struggling to recover from the pandemic. If you are a business owner who has been impacted by the pandemic, make sure to take advantage of this extension!
Who is eligible for the employee retention tax credit?
The employee retention tax credit is a refundable tax credit for eligible employers that helps to offset the cost of retaining and rehiring employees.
To be eligible, an employer must have experienced a complete or partial shutdown of operations due to the COVID-19 pandemic, or have experienced a significant decrease in gross receipts.
The credit is available for qualifying wages paid from March 13, 2020, through December 31, 2020. For more information on eligibility and how to claim the credit, employers can visit the IRS website.
Tip: Take this 60 second quiz to see if you qualify for the ERTC today!
ERC Eligibility Requirements
The Employee Retention Credit is a tax credit businesses can claim for retaining employees and paying wages during the COVID-19 pandemic.
The credit is available to businesses of all sizes that have been affected by the pandemic, including those that have had to shut down operations or reduce hours. To be eligible for the credit, businesses must have experienced a significant decline in revenue or been forced to close their doors due to the pandemic.
The credit is available for qualified wages paid from March 13, 2020, through December 31, 2020. Businesses can claim the credit for up to 50% of eligible wages, up to a maximum of $5,000 per employee.
If your business was impacted in any of the following ways below, you may qualify for the Employee Retention Credit*:
*It’s important to note that a business can be eligible for one quarter and not another.
A business is eligible if one of the following conditions is met:
➤ (a) it fully or partially suspends operations during any calendar quarter in 2020 due to government orders limiting commerce, travel, or group meetings due to COVID-19
➤ (b) it experiences at least a 50% in 2020 or 20% in 2021 reduction in year-over-year gross receipts during the quarter.
Common reasons why companies are eligible for ERC
1) Revenue reduction in any quarters of 2020 and/or 2021, compared to the same quarter in 2019
➤ A drop in revenue is a clear-cut way to prove that a company was hurt by the pandemic since many industries were majorly disrupted and were forced to adapt.
2) Full or partial suspension of your operations
➤ Many businesses were completely or at least partially shut down during the pandemic due to government restrictions.
3) Shutdowns of your supply chain or vendors
➤ Supply chains were deeply affected by the pandemic — especially considering that countries were often locking down their borders even when it came to trade during the height of the pandemic.
4) Reduction in services offered
➤ Whether it was due to changes in their supply chain that forced businesses to reduce their offerings, or it was a rule or regulation that forced them to cease in-person operations, a reduction in services offered demonstrates a negative impact.
5) A disruption in your business
➤ If you can prove any disruption to your normal way of doing business, that may be enough to qualify you for the ERTC. With the potential of ERC fraud, it is important to carefully lay out which reasons directly affected your place of business.
6) Inability to visit a client’s job site
➤ Businesses that required physical presence were often hit the hardest by the pandemic — this particular qualification is open-ended to ensure that a variety of businesses are able to get the help they desperately need.
7) Suppliers were unable to make deliveries of critical goods or materials
➤ Supply chain issues were an enormous issue during the height of the pandemic. This one is particularly easy to prove.
8) Change in job roles/functions
➤ The pandemic forced many employers to lay off employees as well as to change roles within companies in order to reflect changes in their overall business.
9) Lack of Travel
➤ Flights were canceled en masse and the entire travel sector was affected by the pandemic — which means almost every other industry was as well.
10) Lack of Group Meetings
➤ Lockdowns, quarantine, and other restrictions made in-person meetings virtually impossible at times. If your normal meeting cadence was affected, you may be eligible for the ERTC and can calculate your expected tax credit.
11) Change in business hours or closure of office space
➤ No business owner could have been fully prepared for the pandemic, which meant that many were left holding the bag on expenses like renting an office — the ERTC offers a chance to be reimbursed for it. In fact, any company that went from in-office to remote work or work from home is likely eligible.
Tip: Take this 60 second quiz to see if you qualify for the ERTC today!
Common industries that qualify for ERC
Fortunately and unfortunately, almost every industry and type of business was affected by the pandemic, which means there’s a strong chance that you and your business are eligible for the Employee Retention Tax Credit. SnackNation even put together a breakdown of ERTC examples to give you a better idea of what kind of companies can qualify and receive their ERC refund.
List of ERC Eligible industries
• Auto Repair Shops
• Car Washes
• Churches/ Temples
• Commercial Buildings
• Contractors and Construction Companies
• Country Clubs
• Doctor/ Veterinarian Offices
• Dry Cleaners
• Moving Companies
• Parking Garages
• Private Schools
• Property Managers
• Senior Living and Retirement Communities
• Sports Facilities
• Trade Show and Conference Organizers
People also ask these questions about employee retention credit eligibility
Q: What are the rules for the employee retention credit in 2023?
- Even if your business recovered from substantial losses in gross receipts but you did not claim the credit for years prior, you can claim it in 2023. In fact, for three years businesses can assess wages paid after March 12, 2020, to understand their eligibility. Qualifying wages have to be paid between March 12, 2020 through September 30, 2021 (December 31, 2021 — for recovery startups). Credit is only applicable to wages not forgiven under Paycheck Protection Program(PPP loan).
Q: How can you see if you are eligible for the ERC?
- After doing some initial research about the employee retention tax credit you should take some time to review your records and see if you qualify for the ERC. You can also follow this short list of steps:
- 1. Submit a quick form to see if you qualify
- 2. Fill out an application and an ERC expert will be in touch shortly.
- 3. If you do qualify, start planning how to use your credit.
- 4. Some business owners who qualify may receive an advanced payment in the form of a loan.
Q: How long am I eligible for the employee retention credit?
- You can retroactively claim ERC for any eligible wages paid since March 12, 2020. Eligible businesses can still apply for stimulus funds based on their financials between 3/13/2020-12/31/2021.