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Employee Retention Credit 2022-2023 – Everything you need to Know

by Team Advantage Club

The ERC is a refundable tax credit offered by the US Government. Read on to learn how Employee Retention Credit 2022 can benefit your business.

Employee Retention Credit Basics

Employee retention is critical in any organization, and its significance has grown even more critical in recent times after the onslaught of the COVID-19 pandemic. Many owners not only considered but also aggressively carried out the decision to downsize in order to save money. However, laying off staff had a domino effect on several businesses. The government needed to devise a strategy to break this vicious cycle. The US Government created the Employee Retention Credit (ERC) to assist firms in retaining their staff during difficult times. Here are the essential details of Employee Retention Credit for 2022-2023. 

The ERC is a tax credit that encourages qualifying firms to retain their employees on the payroll even if they cannot work due to COVID-19-related reasons. The US Federal Government started this endeavour under the Coronavirus Assistance Relief and the Economic Security Act (commonly known as the CARES Act). ERC was initiated in March 2020 and has since been extended and enhanced through legislation. 

According to ERC Today, just 8% of business owner used ERTC in 2020 and about 10% businesses participated in 2021.

As per the National Federation of Independent Business (NFIB), only about 4% of small business owners know about the ERTC program, and many need information on what it entails. But, although little-known, this government aid provides enormous corporate advantages.

In the current economic climate, it is valuable to explore the Employee Retention Credit 2022 for the eligibility requirements, how to claim the credit and the program adjustments applicable for 2022-23 . With this article, you will understand how the ERC can help your business and how to take advantage of this tax credit.

Employee Retention Credit 2022

Types of employee retention tax credit

There are two kinds of employee retention tax credits (ERTC):

The first type of ERTC was implemented as part of the CARES Act. This credit is available to employers who were in existence in 2020. They must have experienced a full or partial suspension of business owing to a government order linked to the COVID-19 epidemic. Or they faced a significant drop in gross receipts compared to the same quarter the previous year.

The second type of ERTC is an enhancement of the credit included in the 2021 Consolidated Appropriations Act and also the American Rescue Plan Act. The credit is given to qualified employers for salaries paid after December 31, 2020, but before July 1, 2021, and then to wages received before January 1, 2022. This enhanced Employee Retention Credit 2022 has a greater maximum credit amount per employee than the original ERTC and is offered to more firms.

Both types of ERTC are refundable tax credits. It means that if the credit amount exceeds the employer’s tax due, the employer will receive the extra credit. Qualified employers can claim the ERTC on their employment tax returns; in some situations, they may even be able to get an advance credit payment.

Claiming ERC refunds

Companies must first apply to the IRS for the ERC tax credit. Businesses are to give basic information about their organization and staff, as well as evidence that the epidemic affected them. Employers must file Form 941the Employer’s Quarterly Federal Tax Return to begin receiving the ERC credit. The credit can be claimed for each qualified quarter from January 1, 2021, to June 30, 2021. 

The IRS will review the application to determine whether the company is eligible for the credit. If they allow the credit, it will be applicable to future payroll taxes. The ERC provides much-needed financial help to businesses that are struggling to keep employees.

Business owners can visit the IRS website or contact an Employee Retention Credit service for more information on how to begin the Employee Retention Credit 2022 application.

ERC – A Refundable Tax

ERTC is a refundable tax credit. Thus if the credit amount exceeds the employer’s payroll tax liability, the excess credit will be repaid to the employer.

In the case of a non-refundable tax credit, businesses can utilize it only to offset tax burden and cannot result in a refund to the taxpayer. If the amount of the non-refundable credit exceeds the taxpayer’s tax liability, the excess credit is not returned and is forfeited. Also, certain tax credits are partially refundable, meaning that a portion of the credit might be reimbursed to the taxpayer if it exceeds their tax burden. The Child Tax Credit, for example, is partially refundable, which means that eligible taxpayers can receive a refund of up to $1,400 per qualifying kid even if they do not owe any tax.

Therefore, the ERTC is a beneficial credit. It is refundable rather than a non-refundable credit, so qualified employers can get a refund if the credit exceeds their payroll tax liability.

Outstanding employee retention credit

If an eligible employer has an outstanding employee retention credit (ERC), it implies they have not claimed the complete credit amount. This could be due to several circumstances. First, it could be a failure to know if they were eligible for the credit. And second, a lack of qualified incomes to claim the full amount.

Employers with unclaimed ERC can still claim it retrospectively for previous quarters if they match the eligibility requirements. Due to the COVID-19 epidemic, the deadline for claiming the ERC for 2020 got an extension till May 17, 2021. And, now, until April 2024.

Qualified firms must apply for the ERC as soon as possible. The credit can provide significant financial help and offset the costs of retaining personnel during the pandemic. Thankfully the ERC is a refundable tax credit. The employer will get a refund if the credit amount exceeds the amount of tax due by the employer. Employers can claim the ERC by filing an updated return or a quarterly employment tax return.

Employee Retention Credit 2022 Updates

With the Consolidated Appropriations Act of 2022, the employee retention credit (ERC) has been renewed and extended for 2022. These are some crucial facts about the Employee Retention Credit 2022:

Eligibility

Employers must have seen a decrease in gross receipts of at least 10% in a calendar quarter in 2022 compared to the same period in 2019. Employers may also qualify if they were subject to a government order to completely or partially cease operations owing to COVID-19.

Credit amount

For Employee Retention Credit 2022, the maximum credit amount is $7,000 per employee per quarter, with a total credit amount of $28,000 per employee for the year. The amount is less than the 2021 maximum credit amount of $28,000 per employee per year.

Qualifying wages

For 2022, the definition of eligible wages now includes certain health plan charges as well as employer payments to retirement plans. Furthermore, firms with more than 500 employees can only claim the credit for salaries given to non-service employees.

Relationship with other relief programs

Businesses that receive forgiveness for a PPP loan in 2022 can still claim the ERC for eligible salaries paid with money that was not obtained through the PPP. The same salaries, however, cannot be used to compute both the PPP loan forgiveness and the ERC.

Acceptance

Employers can join the ERC program with their employment tax returns or file an amended return to claim it retrospectively. The IRS has also established a haven for employers who applied for the credit in 2020 or 2021 but were later determined to be ineligible, allowing them to avoid penalties and interest if they refund the amount on time.

Scams around Employee Retention Credit 2022

Like any government program providing financial assistance, there is a potential for employee retention credit scams (ERC). Scammers may target businesses by making false claims or assisting them in claiming credit. They may also seek personal or financial information in exchange for aid with the ERC. 

The IRS published a press release (IR-2022-183) about the Employee Retention Credit (ERC) on October 19, 2022. It urged employers to be wary of third parties, encouraging them to claim the ERC when they may not genuinely qualify for the credit due to ignoring the taxpayer’s eligibility or incorrect credit calculation.

Tips to avoid ERC scams

  • Be cautious of unwanted offers: Be wary if you receive an unwanted call, email, or text message purporting to give ERC assistance. Scammers sometimes utilize unsolicited offers to obtain personal or financial information or to persuade organizations to pay fees for services that are unnecessary.
  • Check information: If you are still determining whether an ERC offer or request is real, check with the IRS or a competent tax practitioner. One should keep personal information private. Only give people personal or financial information if you have an assurance of their legitimacy. Scammers may use personal information to commit identity theft or other fraudulent acts.
  • Understand the eligibility requirements: Learn about the ERC eligibility requirements. Be aware of anyone who promises they can assist you in claiming the credit even if you do not match the criteria.
  • Report suspicious activity: If you believe you have been the victim of an ERC scam, notify the IRS, the Federal Trade Commission (FTC), or the attorney general’s office in your state.

It is critical to remain cautious and aware to prevent falling victim to ERC scams. IRS provides extra resources and information on their websites to help businesses understand and claim the ERC safely and legally.

Benefits of joining ERC 2022

ERC 2022 offers a complete value package to organizations of all sizes. This government grant is enabled by the Coronavirus Aid Relief and Economic Security Act. It allows businesses facing the aftermath of Covid-19 to receive monetary compensation from the IRS for retaining staff in 2020 and 2021. The ERC can benefit you financially in the short term by providing you with funds. It can also benefit your company in the long run by allowing you to reinvest the money and recruit new staff as needed. The following are some benefits that make ERC a popular choice for tax-paying companies:

Encouraging

Supports employers to keep their staff on the payroll by offering a financial incentive. This can assist firms in maintaining operational continuity and avoiding the expenditures involved with employing and training new workers.

Adaptable

An employer can use Employee Retention Credit 2022 along with other COVID-19 relief programs, such as Paycheck Protection Program, Economic Injury Disaster Loan (EIDL), and others. Businesses can claim it for salaries paid between March 12, 2020, and December 31, 2021.

Rewarding

As the ERC is a refundable tax credit if the credit amount exceeds the employer’s tax due, the excess credit will be repaid to the employer. This gives qualifying employers additional monetary help.

Financial assistance

The ERC grants eligible firms a tax credit that can go up to 70% of qualified salaries paid to employees. This can help defray the expense of employee retention during the COVID-19 epidemic.

Accessible

Employers can claim the ERC on their quarterly employment tax returns or file an amended return to claim it retrospectively. The claim process is easy to understand and can be done with the guidance of a tax professional or payroll provider.

The Employee Retention Credit is a refundable payment, it intends to help businesses and firms retain staff during and after the pandemic. Moreover, since ERC’s revision, more businesses are becoming eligible for tax benefits.

As per the Internal Revenue Service (IRS), the ERTC has delivered nearly $23 billion in financial assistance to qualifying businesses as of September 2021. The credit got extention many times, allowing qualifying employers to claim the benefit more frequently.

With Employee Retention Credit 2022, many companies have been able to retain their staff as a response to the credit. This illustrates the ERTC’s success. A successful economy requires healthy businesses. The government established the Employee Retention Credit to lend a helping hand to businesses in financial difficulties. Therefore, it is vital to utilize the ERTC for its multiple benefits. The credit helps businesses of all sizes, from small to large, and has saved various struggling industries, including hospitality, retail, and healthcare.


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