COVID-19 likely impacted you and your business in some way.
In Q1 of 2020 alone, the United States saw a nearly 5% decrease in its GDP. To attempt to revitalize the economy, the federal government introduced several stimulus programs and packages. One such program is the Payroll Tax Refund, also known as the Employee Retention Tax Credit (ERTC).
While the Payroll Tax Refund is arguably less known than the PPP loans businesses received during the height of the pandemic, this employer-friendly relief program is just as beneficial — and can often be complementary to the PPP (continue reading for more info about that).
“Nearly half (47%) of owners reported that they might take advantage of the tax credit in 2021.” — NFIB
The $2 trillion CARES Act, which supported the PPP loans is the same source of funds for the Payroll Tax Refund.
However, only 8% of owners used the ERTC in 2020 and only 10% used it in 2021, so it’s flown under the radar and it severely underutilized despite the fact that business owners have been reliably receiving the Payroll Tax Refund they are entitled to.“Nearly half (47%) of owners reported that they might take advantage of the tax credit in 2021.” — NFIB Click To Tweet
If you’re a small, medium, or even a large-sized business owner that managed to keep your full-time employees or full-time equivalent employees on payroll throughout the pandemic, there’s a good chance you are entitled to an amount of the Employee Retention Tax Credit.
This article will cover the Payroll Tax Refund and the other COVID-related programs for businesses impacted by the pandemic, so you know what to apply for in 2023!
What is a Payroll Tax Refund?
Typically, if you overpaid your taxes during the year, you may be entitled to a payroll tax refund.
This refund is issued by the Internal Revenue Service (IRS) and is based on the amount of taxes that were withheld from your paychecks. The refund will be equal to the amount of taxes that were overpaid, minus any penalties or interest that may be owed.
In order to receive a payroll tax credit, you must file a tax return and include a copy of your W-2 form. The IRS will then issue a refund check, which will be sent to the address listed on your tax return.
➤ How COVID impacts your payroll tax refund options
The outbreak of Covid-19 and the resulting economic downturn has had a major impact on payroll tax refund options.
The Paycheck Protection Program, for example, has been amended several times in order to provide more targeted relief to small businesses. The Employee Retention Credit has also been expanded to provide greater financial assistance to workers who have been affected by the pandemic.
In addition, many states and localities have enacted their own payroll tax relief programs in response to the Covid-19 crisis. As a result of these changes, payroll tax refund options are now more complex than ever before.
However, with careful planning and advice from a qualified tax professional or CPA, businesses can still take advantage of the many available opportunities for tax relief.
➤ Available payroll tax credit refund programs that businesses can apply for in 2023
The Employee Retention Tax Credit (ERTC) is a tax credit created by the payroll tax credit CARES Act to incentivize businesses to keep employees on their payroll during the COVID-19 pandemic.
The credit is available to eligible employers who experience either a full or partial suspension of operations due to the pandemic, or who experience a significant decline in gross receipts.
The Employee Retention Tax Credit applies to a wide variety of businesses, including those that are for-profit, nonprofit, and tax-exempt, but determining payroll tax refund eligibility can still be tricky.
Fortunately, there are a number of ERTC services available that can help business owners manage their taxes and claim the tax credit. These services can help business owners save a significant amount of money on their taxes, and they can also help to ensure that all of the paperwork is filed correctly.
Tip: Take this 60 second quiz to see if you prequalify for the ERTC today!
Important Questions to Learn More About the Payroll Tax Credit Refund
1) How do I apply for the payroll tax refund in 2023?
Applying for the Payroll Tax Refund in 2023 involves filling out a form and submitting it to the IRS. You can do this yourself or work with a company specializing in this refund process. The IRS will then review your form and determine whether or not you are eligible for a refund.
If you are eligible, they will send you a check for the amount you are entitled to. You will need to provide documentation indicating that you have been impacted by the pandemic in order to receive the refund.
2) What is the payroll tax refund deadline?
The Payroll Tax Refund’s retroactive deadline was January 1, 2022, but it has been moved back to October 1, 2021. The deadline to actually claim the Payroll Tax Refund has been moved several times, so it’s best to consult with a company that specializes in the ERTC and other stimulus programs for businesses impacted by COVID-19.
3) Can business owners claim the payroll tax refund retroactively?
Yes, it is possible to claim the Payroll Tax Refund retroactively. In fact, most business owners were unaware of the program until recently, but the point of the government allowing owners to retroactively apply for it is so that they are not penalized purely for being unaware.
The economy does not benefit from businesses failing — something this program is designed to assist with.
4) How much is the payroll tax refund per employee?
The Employee Retention Tax Credit (ERTC) is a refundable tax credit for eligible employers equal to 70% of the first $10,000 in qualified wages per employee per quarter (including allocable qualified health plan expenses) that eligible employers pay their employees in 2021 and 50% respectively for 2020.
The maximum credit is $7,000 per employee per quarter for 2021 and $5,000 per employee per quarter for the first three quarters of 2021.
5) What can the payroll tax refund be spent on?
Businesses can use the credit to offset payroll taxes or other employment-related taxes. Eligible employee wages include salary, wages, tips, and other forms of compensation. The credit can also be refunded if it exceeds the business’s tax liability.
6) Is the payroll tax refund taxable income?
While the ERTC is a valuable tool for businesses struggling to keep their workers during the pandemic, it is important to note that it is taxable income. This means that businesses will need to account for the credit when they file their taxes for the year. However, because the credit is refundable, businesses will receive a refund if the credit exceeds their tax liability.
7) What are the benefits of qualifying for the payroll tax refund in 2023?
The benefits of qualifying for the ERTC include receiving a refundable tax credit that can be used to offset payroll taxes, as well as reducing unemployment insurance costs. The other key benefit is that the funds can help prevent turnover and the associated costs of businesses being forced to lay off employees.
8) How is eligibility determined for the payroll tax refund?
The credit is available for eligible employers who experience economic hardship as a result of the pandemic. To be eligible for the ERTC, an employer must have experienced a decline in gross receipts of at least 20% percent when compared to the same quarter in the prior year.
In addition, the employer must have maintained their payroll during the specified period. Qualifying wages are those that are paid to an employee for time working during which the employer’s business operations were fully or partially suspended due to a government order related to COVID-19.
9) How do I see if I qualify for the payroll tax refund?
To see if your business qualifies for the credit, you can visit the IRS website and use the ERTC Qualification Tool or reach out to an ERC services provider (see below). This tool will ask you for some basic information about your business, including its size and location.
Once you have entered this information, the tool will tell you whether or not your business qualifies for the credit. If you do qualify, you will need to file Form 941 with the IRS in order to claim the credit.
10) What documentation do I need to provide to receive the payroll tax refund?
To claim the credit, businesses will need to provide documentation showing their revenue decline or shutdown. They will also need to provide documentation of eligible wages paid to employees, such as payroll records. The IRS has provided additional guidance on what documentation will be required to calculate, claim the credit, and check the status of your ERC.
Recommended Payroll Tax Credit Service
➤ ERC Assistant
ERC Assistant is a team of proven Payroll Tax Credit specialists working together to serve businesses that have been adversely affected by the pandemic. This ERTC service company ensures the federal stimulus for business owners ends up with those who are entitled to it and helps you apply for an ERC advance.
Tip: Take this 60 second quiz to see if you prequalify for the ERTC today!