As businesses continue to recover from the impacts of the global pandemic, it’s crucial to stay informed about the available financial resources. One significant support measure that has undergone recent changes is the Employee Retention Credit (ERC). This article will detail the qualifications and eligibility criteria for the ERC in 2023.
The ERC is a refundable tax credit designed to help businesses keep their employees on the payroll during these challenging times. Enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March 2020, the ERC has since been amended three times1.
In 2021, there were several important changes to the ERC. The percentage of qualified wages used to calculate the ERC increased from 50% of up to $10,000 in wages in 2020 to 70% of up to $10,000 per quarter in 20212. This expansion provided businesses with greater financial relief during a critical period.
Employers eligible for the ERC include those who experienced a significant decline in gross receipts or had their operations fully or partially suspended due to a government order3. It’s important to note that you can still claim the credit in 2023 if your business recovered from a substantial decline in gross receipts and you have not already claimed the credit3.
The maximum amount of ERC that can be claimed was increased significantly in 2021. Employers could claim a credit of up to 70% of $10,000 in wages per employee for each quarter of 2021, equating to a maximum of $28,000 per employee for the year4.
To claim the ERC, businesses must amend Form 941, which reports quarterly federal employment payroll taxes. This is done using IRS Form 941-X5.
Navigating the complexities of tax credits can be challenging, but staying informed about changes to programs like the ERC is crucial for your business’s financial health. By understanding the qualifications and eligibility criteria for the ERC, businesses can take full advantage of this valuable financial resource.