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How the Employee Retention Tax Credit Can Empower Your Business in 2023

How the Employee Retention Credit Can Empower Your Business in 2023

Word has been spreading about the Employee Retention Credit (ERC) — commonly called the Employee Retention Tax Credit (ERTC) — but why? 

This refund was originally part of the CARES Act, which was meant to help Americans recover from the pandemic. It was expanded — thanks to the Consolidated Appropriations ACT of 2021 — to help small businesses get back on their feet. The ERC provides eligible businesses up to $5,000 per employee kept on the payroll for 2020 and an additional $7,000 per employee for each of the first three quarters of 2021. 

That means small and medium-sized businesses are seeing payroll tax refunds of $26,000 per employee that were kept on the payroll for 2020-2021. If your business qualifies and you submit its ERC application, you too could potentially get back thousands for your company. Below, we’ll discuss the ERC benefits and what eligible businesses are doing with their refunds.

Your Business Can Claim ERC Benefits in 2023

Although there are slightly different qualifications for the ERC 2020 and the ERC 2021, you can claim your business’s refund from both years in 2023 if it’s eligible. 

The IRS ERC FAQ verifies that the 2020 period for eligible payroll deductions can be claimed this year and that you can still claim a company’s refund for the first three quarters of 2021. However, you may need to fill out separate forms.

ERC application and approval process

Because of the various updates and amendments to the ERC legislation, applying for the ERC can be tricky. First, you’ll need to make sure your business is eligible. Then, you’ll need to see if it may qualify by submitting an application. 

If there is missing information, the application is filled out incorrectly, or you’ve miscalculated your company’s payroll tax credit amounts, your business’s application could be denied and you may need to start over. However, once your company’s ERC application is approved, you should receive its refund from the US Treasury within about six to nine months, depending on their backlog.

If you use the services of an ERC professional, you can potentially reduce the headache surrounding the application and qualification procedures. An ERC professional may:

  • Check that your business is eligible for the ERC
  • Compile the paperwork
  • Review your company’s ERC application
  • Amend appropriate tax documents and estimate your business’s potential refund
  • Share and apply their knowledge of ERC legislation updates, timelines, and eligibility requirements

How your business can use the ERC Refund

Many businesses that hired an ERC professional are already approved for their refund. Unlike the Payroll Protection Program (PPP), this refund can be used by qualified small businesses for a variety of purposes. 

Since there is still a huge employee shortage and small businesses must compete to attract workers, qualified businesses may choose to use their ERC refunds to get ahead of the hiring game by offering higher wages. 

Small businesses should talk to an ERC professional to help answer questions about eligibility and to get the ball rolling on the application process.

ERC eligibility requirements:

Your business may be eligible for the 2020 payroll tax credit if it:

  • Had 100 or fewer employees on payroll in 2019
  • Kept employees on payroll during 2020
  • Was partially or fully shut down due to a government order
  • Had revenue decline by 50% or more during any quarter of 2020 when compared to the same quarter in 2019
  • Had disruption in commerce, meetings, or travel

Your business may be eligible for the 2021 payroll tax credit if it:

  • Had 500 or fewer employees on payroll in 2020
  • Kept employees on payroll during 2021
  • Was partially or fully shut down due to a government order
  • Had revenue decline by 20% or more for any of the first three quarters of 2021 when compared to the same quarter in 2020
  • Had disruption in commerce, meetings, or travel

Cash Back into Your Business

Eligible companies are getting hundreds of thousands back through the ERC. Besides hiring new employees, your business could put this money toward:

  • New equipment or office supplies
  • Expanding to a new location
  • Continued education for employees
  • Marketing
  • Increasing its online presence

The Employee Retention Credit for Your Business

Even if you’re not sure if your business may be eligible for the ERC, it doesn’t hurt to apply. At Innovation Refunds, our team of  tax professionals help companies receive thousands back so they can recover from the pandemic. Seeing if your business qualifies for ERC assistance is easy. Simply answer a few questions, and our professionals will estimate your company's potential refund.

While it may be a while before everything goes back to “normal,” the payroll tax refund can help your company get back on its feet so you can start moving forward with growing your business.

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