How to qualify for the employee retention tax credit in 2023
Are you a business owner looking for ways to save money in 2023? If so, then you need to read this blog post about the employee retention tax credit. The new tax credit was recently announced and offers significant savings for businesses. In this post, we'll outline what qualifies for the employee retention tax credit and how you can take advantage of it. So read on to learn more about this great opportunity and how it can help your business save money in 2023!
Understanding the Basics of the Employee Retention Tax Credit
The Employee Retention Tax Credit (ERTC) is a federal tax credit available to employers who keep their employees for at least 52 weeks in a calendar year. The credit is available to employers with an annual payroll of $25,000 or less. The credit can be claimed on your federal income tax return, and it can be combined with other small business relief initiatives to reduce your tax burden.
To qualify for the ERTC, your company must meet certain eligibility requirements. Your company must have an annual payroll of $25,000 or less, and you must keep your employees for at least 52 weeks in a calendar year. In addition, your company must have been in business for at least three years and have at least 50 employees who work at least 20 hours per week. Finally, your company must be located in the United States.
If you are an employer who meets the eligibility requirements for the ERTC, you can claim a credit of up to $3,000 per employee on your federal income tax return. The maximum credit that you can claim for each employee is $3,000. If you are an employer who meets the eligibility requirements for the ERTC and also qualifies for the Small Business Job Creation Tax Credit (SBJCTC), you can claim a total credit of up to $6,000 per employee on your federal income tax return. The maximum credit that you can claim for each employee is $6,000.
To claim the ERTC on your federal income tax return, you will need to complete Form 8233, Employee Retention Tax Credit Claim Form. You will also need to provide documentation that shows that you met the eligibility requirements for the ERTC and that you kept your employees for at least 52 weeks in a calendar year. You can find more information about claiming the ERTC on the IRS website.
If you are an employer who meets the eligibility requirements for the ERTC and also qualifies for other small business relief initiatives, such as the SBJCTC or the Work Opportunity Tax Credit (WOTC), you can combine these credits to reduce your tax burden. For example, if you are an employer who meets both eligibility requirements for the ERTC and also qualifies for the SBJCTC, you can claim a total credit of up to $12,500 per employee on your federal income tax return. The maximum credit that you can claim for each employee is $12,500.
If you are an employer who meets the eligibility requirements for the ERTC and also qualifies for both the SBJCTC and the WOTC, you can claim a total credit of up to $24,000 per employee on your federal income tax return. The maximum credit that you can claim for each employee is $24,000.
In addition, if you are an employer who has 50 or more employees and your annual payroll is at least $50,000 but less than $100 million, you may be eligible to participate in the American Business Competitiveness Act (ABCA). If this is true, you may be able to claim a credit against taxes owed for employment expenses that exceed 50% of your business income. To find out if you are eligible to participate in the ABCA, contact your accountant or tax preparer.
Eligibility Requirements for Employers
The employee retention tax credit is a federal incentive program that helps employers retain qualified workers. Eligible businesses may claim a tax credit of up to $2,000 per qualifying employee during the year. In order to be eligible, an employer must meet certain eligibility requirements and adhere to specific rules regarding compliance.
Employers must meet the following criteria in order to qualify for the ERTC:
- employ at least 50 employees who have worked for at least one full year within the past three years
- maintain a workforce of 75% or more of its total employee base for at least four out of five consecutive years
- continue to make payments into an employee benefit plan (EBP) after meeting the work requirement
- provide health insurance coverage that meets minimum standards outlined in Obamacare
In addition, employers must comply with a number of other specific rules in order to maintain their eligibility:
- keep personnel records on file for each worker entitled to benefits under an EBP
- ensure that any changes made in respect of participation, termination or retirement benefits are promptly recorded and communicated to affected employees
- notify employees before making any changes affecting their benefits package or compensation arrangement
If all these requirements are met, then the employer can claim a refundable tax credit equal to 30% of wages paid during the preceding year ($6,000/$12,000 maximum), provided that no more than 50% of total payroll costs are attributable thereto. Eligible employees may also be able to receive cash payments from their employers as part of this program.
Applying and Claiming the ERTC in 2023
Employers who are looking to retain their employees in the future should consider taking advantage of the employee retention tax credit. This credit is available to businesses with at least 50 employees who have been with the company for at least one year. In order to qualify, employers must meet a few eligibility requirements, including having paid income taxes in the past year and providing a written statement from their employees confirming that they want to stay with the company.
Once an employer has met these requirements, they can claim the credit by filing a tax return within two years of the end of the tax year in which they incurred expenses related to employee retention. The maximum credit an employer can claim is $2,000 per employee, with a cap of $10,000 per company. To maximize their benefit, employers should track their expenses and make sure they are in compliance with all of the eligibility requirements.
If you are an employer interested in claiming the employee retention tax credit in 2023, be sure to consult with a qualified tax advisor to ensure you are taking all of the necessary steps to qualify.
How to Calculate Your Maximum Benefit
In order to claim the ERTC, employers must first understand how it works and then calculate their maximum benefit. The credit is based on a company's taxable wage income and can be claimed by both businesses with employees and sole proprietorships. Here are five key factors to keep in mind when calculating your potential ERTC:
- Your taxable wage income: This includes all regular pay, bonuses, commissions, and other forms of compensation received from employees during the year.
- The number of full-time employees employed by your business at the end of the tax year: This is determined by adding up all hours worked by workers during the year (1099 form information may be necessary for some employers). Part-time or temporary workers are not included in this calculation.
- Wages above specified threshold amount: The $9,000/$18,000 threshold applies to most companies but there are several exceptions that include smaller businesses (<50 employees), farming operations (<15 employees), and seasonal industries (e.g., recreational fishing). If your company falls into one of these categories, you will not have to pay any federal taxes on wages above the threshold amount ($9,400 for 2018).
- Employees covered under certain worker protections laws: Most employee benefits programs (i.e., health insurance, retirement savings plans) qualify as “employer contributions” which means they're added onto an employee's paycheck before taxes are calculated so they'll receive credit for that portion too (.pdf). However, if you don't offer any such benefits or only offer them partly (i.e., after taxes have been taken out), then those contributions won't be counted towards eligibility for the credit. Finally…
For employer structures where 100% ownership is held indirectly through limited liability corporations (LLCs), partnerships or S corp status – even though no employee may work directly for you – you may still be eligible for a partial employee retention tax credit if 50% or more of your annual payroll consists of qualified Corporation Code Class W compensation paid from profits derived from qualifying trade or business activities.(Tax Cuts And Jobs Act Sec Amendments For Hurricane Harvey Victims Updates Corporation Code Section 162(m)) So long as at least half of its W2 wages come from items on this list during each calendar quarter payroll expenses attributable to active trade or business activities conducted through an entity treated as a disregarded entity don't exceed 10% ownership interest in the entity. If you have employees working for you as contractors, they must still be considered part of your workforce and count towards eligibility even if they are not issued a W-2 form (although their hours and wages may not be included on your tax returns).
Once these five factors are understood, calculating an ERTC can be relatively straightforward. Here is an example to illustrate: Company X employs 50 full-time workers and earns $1 million in taxable wage income during the year. The company's threshold amount is $18,000 so all wages over that amount ($180,000) will qualify for the credit. The company also meets all other criteria listed above so its maximum benefit would be $86,000 ($1 million x 50%).
Leveraging Other Small Business Relief Initiatives
As a small business owner, it's important to stay competitive and retain the key employees that help you succeed. The employee retention tax credit can help you do just that by providing a financial incentive for employers to keep their employees.
To qualify for the ERTC in 2023, your company must meet certain eligibility requirements. These include having fewer than 500 employees at the end of the tax year, being incorporated in or registered with Canada, and having an active employer identification number (EIN). Additionally, your company must have had its EIN for at least three years before claiming the credit.
Once your company meets these eligibility requirements, you'll need to apply for the credit. To do so, first create an application form and submit it with supporting documentation to CRA. Next, calculate your maximum benefit using our simple tips guide. Finally, make sure you claim the credit on your taxes as soon as possible to maximize its benefits.
The employee retention tax credit is a valuable tool that can provide small business owners much needed financial relief in 2023. By determining your eligibility, understanding the requirements, and properly filing for and claiming the ERTC, you can deploy this helpful program to keep your employees on staff and reduce your overall tax liability. With careful planning and leveraging of resources available in other programs such as PPP loans or expanded unemployment benefits, employers will find that they are able to successfully maximize their potential benefit from the ERTC while helping their employees during these tough times.