As a small business owner, the Employee Retention Credit (ERC) can provide much-needed relief to businesses that were impacted by the COVID-19 pandemic. But, with key deadlines approaching fast, it’s essential to stay on top of the requirements and understand how to claim the credit correctly.
In this blog post, we’ll guide you through the process of claiming the ERC in 2023, including understanding the deadlines, eligibility criteria, how to calculate and file for the credit, and how to track your ERC money. We’ll also highlight common mistakes to avoid and provide tips on how to track and record the credit. This post will give you the most up-to-date information on the ERC and how to claim it correctly before the 2023 deadline.
Introduction to the Employee Retention Credit
The Employee Retention Credit was introduced as a part of the Coronavirus Aid, Relief, and Economic Security (CARES), Act which is a $2.2 trillion economic stimulus bill passed in March 2020. The CARES Act’s main goal was to extend economic relief to American workers and business owners.
It is important to note that the ERC is a refundable payroll tax credit; it is not a loan that needs to be paid back. It is aimed at helping employers whose businesses were impacted by the COVID-19 pandemic. And, even more specifically, it was created to help small eligible employers with the cost of keeping staff employed and their wages paid during the hardships of the pandemic.
In 2020, the Employee Retention Tax Credit was extended as part of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 for the first two calendar quarters of 2021. Then the refundable tax credit was extended again in 2021.
Understanding the Filing Deadlines for ERC in 2023
Even though the tax credit expired in September 2021, qualified businesses, companies, and employers can still file paperwork and retroactively receive claims for the Employee Retention Credit in 2023. To do so, business owners must file IRS Form 941-X which is used to make corrections to their originally filed Form 941s. However, this can only be done up to three years after they originally filed their payroll tax returns.
According to the IRS, “For purposes of the period of limitations, Forms 941 for a calendar year are considered filed on April 15 of the succeeding year if filed before that date.” Therefore, Forms 941-X for eligible quarters in 2020 must be submitted to the Internal Revenue Service by April 15, 2024. Similarly, the ERC deadline to claim ERC funds for eligible quarters in 2021 must be submitted by April 15, 2025.
Upcoming Deadlines to File for the ERC
- Eligible employers who want to claim ERC funds for Q2, Q3 or Q4 in 2020 must submit their 941-X by April 15, 2024.
- Eligible employers who want to claim ERC funds for Q1, Q2 or Q3 in 2021 must submit their 941-X by April 15, 2025.
Eligibility Requirements for the Employee Retention Credit
There are two main eligibility requirements that employers must meet to receive the tax credit. The first is a significant decline in gross receipts or total revenue without subtracting any costs or expenses. In most cases, the eligibility determination is based on the data from 2019 because it precedes the effects of the COVID-19 pandemic and lockdown, which officially began in March 2020. Contrary to what you may have heard, businesses who received Paycheck Protection Program (PPP) loans are still eligible to receive the credit.
Employers Whose Business Experienced a Significant Decline in Revenue
Businesses that experienced either of the following may be eligible to receive the Employee Retention Credit:
- Total revenues for quarters in 2020 must be at least 50 percent lower when compared to the same quarter in 2019
- Total revenues for quarters in 2021 must be at least 20 percent lower when compared to the same quarter in 2019
Employers Whose Business Was Fully or Partially Suspended Due to Governmental Orders
Businesses with a small number of eligible employees could be eligible for the ERC whether the company, business, or shop was forced to close under a government-mandated shutdown order or was able to stay open under a partial shutdown order. Companies must meet one of the following conditions to be considered eligible in 2021:
- Operations are totally or partially suspended due to government restrictions on working, travel, commerce, and meetings
- There is at least 20 percent less in the gross receipts of your business than in the same calendar quarter in 2019
- Recovery startup businesses are also eligible to receive the tax credit. A recovery startup business is defined as a business with yearly gross sales of $1 million or less that began operating a trade or business after February 15, 2020.
How to Calculate the Employee Retention Credit
The Employee Retention Credit calculator is straightforward for experienced firms, but it can be time-consuming because it requires a detailed understanding of the ERC calculation guidelines.
Determining Gross Receipts
In order to qualify for a tax credit based on a decline in gross receipts, the gross receipts for a given quarter in 2020 or 2021 must be compared to the same quarter in 2019 to determine how significant the decline is.
If an employer’s gross receipts were below 50 percent for any calendar quarter in 2020 compared to the same quarter in 2019, they could be eligible for the ERC. For 2021, the threshold is a little easier to meet. A business is eligible for the ERC if its gross receipts are less than 80 percent compared to the same quarter in 2019.
This is a payroll tax credit, which means that eligible employers can receive refunds for taxes already paid. Even if your business paid little to no income taxes, you could still receive a tax credit for your federal employment taxes. All told, this payroll tax credit, which is based on the amount of qualified wages paid, could provide much-needed relief to small businesses and help them keep employees on the payroll.
How to File for the ERC in 2023
Eligible employers must first determine their eligibility, making sure they meet the IRS qualifications. Otherwise, their paperwork will not be accepted. Once you are certain that you are eligible for the Employee Retention Credit, then you can move forward and actually file for the credit.
Originally, employers were able to claim the Employee Retention Credit whenever they file quarterly taxes to the government through Form 941. However, the deadline for the Employee Retention Credit ended on September 30, 2021. Thankfully, employers can still file for the ERC in 2023!
Employers can amend previously submitted forms by filing and submitting Form 941-X so they can retroactively claim the Employee Retention Credit. Which, as previously stated, can be done for up to three years after the original tax forms were filed.
How to Track Your ERC in 2023
You have the capability to call the IRS to check on your filing yourself; however, the hotline to talk to an IRS agent is flooded and the wait time is typically long. Not only can this be a headache, but it can also be a major time commitment.
So, what is a viable solution for tracking your refund? As a part of the white-glove service StenTam offers to our clients, we can call the IRS on your behalf to keep track of your filing. This saves you time and gives you the dedicated customer service you deserve. Learn more about what services we offer by filling out this simple, 7-question form today.
Conclusion and Next Steps
The Employee Retention Credit provided significant relief for small businesses during the ongoing COVID-19 pandemic. By understanding the 2023 deadlines, eligibility criteria, and how to calculate and file for the credit, small business owners can ensure they are able to claim the credit and receive the financial assistance they need. However, the process of claiming the credit can be complex and confusing.
If you need additional help understanding the Employee Retention Credit or how to claim it in 2023, please don’t hesitate to reach out to one of StenTam’s experienced tax specialists. They are available to answer your questions and provide guidance to ensure you claim the credit correctly before the deadline. Contact us today to schedule a consultation with one of our experts.