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Employee Retention Credit

What is a the Employee Retention Credit?

The Employee Retention Tax Credit (ERC tax credit) is a refundable tax incentive program put in place to reward U.S. businesses that kept employees on board during fully or partially-suspended operations in the 2020 and 2021 tax years. The credit program was promulgated via the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020. The ERC is a refundable credit generated on a per-employee basis, up to $26,000 per employee. The Employee Retention program applies to W-2 employees.

Why does the Employee Retention Credit Matter for Business Owners?

The Employee Retention Credit matters for business owners because it provides a lucrative, refundable tax credit to reward businesses for keeping employees on their payroll during the pandemic. The ERC provides qualifying employers with up to $26,000 per employee, per year. The intent behind the credit is to help renumerate businesses that suffered due to the economic effects of the COVID-19 pandemic.

How does the employee retention tax credit work?

The employment retention credit is available to employers who experienced a full or partial governmental shutdown of operations, or a significant decline in gross receipts during the 2020 and/or 2021 years.

The amount of the credit is up to $7,000 per employee, per quarter. The timeframe for calculating the ERC is from March 12, 2020 to December 31, 2021.

It is important to note a couple of exceptions to ERC eligibility. 1) Qualifying wages must be paid as W-2 wages, and not contractor expenses paid on Form 1099, and 2) wages forgiven under the Paycheck Protection Plan (PPP) are not eligible for ERC credits.

Once the proper qualification and quantification is complete, the ERC is claimed via IRS Form 941X.

Due do the nuances involved in qualifying and quantifying the ERC credit, and the IRS rule changes, it is helpful to consult with a tax professional to determine how to best navigate the credit claim process.

Endeavor Advisors provides a turnkey, full-suite solution for claiming and filing the ERC credits. We work alongside your existing CPA or tax services provider in a seamless process to ensure compliance and value capture.

Is the employee retention credit still available in 2023?

Yes, although the ERC is only available for the 2020 and 2021 tax years, U.S. businesses can still claim the ERC on amended 2020/2021 tax returns until 2024.

What are the new rules for employee retention credit?

The rules for the ERC have been updated as part of the Consolidated Appropriations Act, 2021. Some of the key changes to the ERC include:

  • The credit has been extended to cover wages paid through July 1, 2021.

  • The credit rate has been increased from 50% to 80% of qualified wages for the first $10,000 of wages per employee per calendar quarter.

  • Eligible employers with more than 100 full-time employees can now claim the credit for wages paid to any employee, regardless of whether the employee is providing services or not.

  • The gross receipts test has been modified, allowing more employers to qualify for the credit.

  • The credit can now be claimed against both the employer’s portion of Social Security tax and the employer’s portion of Medicare tax.

  • Employers can now claim the credit for wages paid to employees who are furloughed or on leave due to COVID-19.

What Are the Tax Benefits of the Employee Retention Credit?

The tax benefits of the ERC tax credit can provide up to $7,000 per employee, per quarter, for the 2020 and 2021 tax years. Employers that maintained employees on the payroll from March 12, 2020 through December 31, 2021 can receive a refundable tax credit for qualifying employees.

Who qualifies for the employee retention tax credit (ERC Qualifications)?

Businesses that maintained W-2 employees on payroll from March 12, 2020 to December 31, 2021 can qualify for the employee retention tax credit (ERTC). The IRS has set out ERTC qualifications rules that require either 1) partial of full shut down of business due to governmental order, or 2) a significant loss of gross receipts during the 2020 and/or 2021 tax years.

If a business can prove its qualification for the employee retention credit 2021, it can receive up to $7,000 per employee, per quarter, as a refundable tax credit on its 2020 and 2021 tax returns.

How to apply for employee retention credit?

Qualifying businesses can complete an Employee Retention Tax Credit study with a tax service provider, who will provide a complete IRS Form 941X for filing.

How to calculate employee retention credit (ERTC)?

The rules for calculating the Employee Retention Tax Credit differ from year to year due to changes in the IRS guidelines relating to the credit. Generally speaking, for tax year 2020 the credit is capped at $5,000 per employee, and in 2021 it is capped at $7,000 per employee, per quarter. It is important to note that qualification depends on governmental shut down orders, or a significant loss of gross receipts during the year in which the ERC is claimed.

What Are the Potential Drawbacks of an ERC Credit?

The IRS has changed the rules and guidance regarding how to qualify and calculate the ERC credit. As such, qualifying and employer and quantifying the credit has become increasingly complicated. It is imperative to utilize the expertise of a qualified tax specialist to aid in the capture and documentation of the ERC credit.

How Endeavor Advisors Can Help with your Employee Retention Credit

Endeavor Advisors provides a full-services suite of professionals to properly qualify and quantify your ERC claim. This means we run a two-part analysis for qualification: 1) researching and documenting government shutdown orders, and 2) a year-over-year financial analysis proving a significant loss of gross receipts during the relevant pandemic years. Then, we quantify the credit by analyzing W-2 and payroll data from the relevant timeframe between March 12, 2020 and December 31 2021. Finally, we provide pro-forma IRS Form 941 for your tax filings. We work alongside taxpayers and their CPAs or tax professionals to provide streamlined services, and maximum value capture.

FAQ’s – Frequently Asked Questions

Can I still apply for the employee retention credit in 2023?

Yes, the ERC credit is available through 2024. However, it is only available for the 2020 and 2021 tax years. Having said that, it is possible to amend your 2020 and 2021 tax returns for refunds relating to the ERC credit through 2024.

How do I claim my ERC credit 2023?

In order to claim the ERC credit, it is necessary to properly qualify and quantify the claim. Qualification requires an analysis of gross receipts from 2019-2021. Qualifying employees must be documented and paid via W-2 wages. Once the required qualification and quantification has been completed, IRS Form 941X must be filed with your 2020 and 2021 tax returns in order to receive a refund in the amount of the credit claimed.

Is ERC extended to 2023?

Yes, The ERC can be claimed on a taxpayer’s 2020 and 2021 tax returns as late as 2024.

How do you qualify for ERC 2022?

Qualification for the Employee Retention Credit 2022 (ERTC tax credit) Requires that a taxpayer show 1) full or partial government-ordered shutdown of a business OR 2) significant year-over-year decrease in gross receipts.

In addition, wages covered by PPP loans and 1099 expenses do not qualify.

What are qualified wages for the employee retention credit?

W-2 wages paid between March 12, 2020 and December 31, 2021.

Is there a deadline to claim the employee retention credit?

Yes, it occurs in 2024. The day of the deadline depends on when a taxpayer’s 2020 and 2021 tax returns were filed. Endeavor Advisors can inform you of when the deadline will occur for your business.

How does employee retention credit affect tax return?

Filing for the ERC requires IRS Form 941X to claim the credit. That form will be added to your amended 2020 and 2021 tax returns. Other than that, no substantial changes will occur to your tax returns. Once the Form 941X is filed, your business is entitled to a refund in the amount of the ERC credit.

How long does it take to receive employee retention credit refund?

It depends on how quickly the IRS processes your tax returns. Refunds are typically received between 1 and 5 months after applying for the credits.

Is the employee retention credit taxable income?

No, employee retention credits are not considered taxable income.

 

This page was last updated by Steven Jefferies.

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