When the COVID-19 pandemic hit, the CARES Act introduced the Employee Retention Credit (ERC) in March 2020. This credit aimed to support employers in retaining their valuable workforce amidst the pandemic's uncertainties. It was a welcome relief for many businesses struggling to keep their doors open.
The End of the ERC Eligibility Period
Fast forward to December 31, 2021, and that marked the end of the ERC eligibility period. In simple terms, it means that employers can no longer claim this credit for wages paid after that date. However, there's good news: Employers can still claim the employee retention credit 2023 for wages paid between March 13, 2020, and December 31, 2021, when they file their quarterly payroll tax returns.
What Should Employers Do Now?
With the ERC eligibility period behind us, employers should consider these steps:
Review Eligibility: Take a moment to review if you're eligible for the ERC. Did you experience a significant drop in your gross receipts, or were you partially or fully shut down due to government orders? This drop in revenue should be substantial - at least 50% in any quarter of 2020 or 2021 compared to the same quarter in 2019. And remember, consult with your tax professionals if you're unsure about your eligibility. They're there to help.
Claim the Credit: If you meet the eligibility criteria, it's time to claim your ERC benefits. This is done through your quarterly payroll tax returns. You'll need to fill out Form 941, which is your Employer's Quarterly Federal Tax Return. Additionally, for the relevant quarter, attach Form 941-X, also known as the Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund. To ensure you're doing this correctly and following all the rules and regulations, it's wise to work closely with your tax professionals.
Maintain Records: Keeping good records is vital. You should maintain accurate records of the wages that qualify for the ERC and any other relevant information. This includes records of your gross receipts, the number of employees, and the wages you paid to them. Don't forget to hold onto records of government orders that affected your operations. These records should be kept for at least four years after the due date of the tax return where you claimed the credit. To help you keep everything in order, consult with your tax professionals to set up a recordkeeping system that meets all the necessary requirements.
Plan for the Future: While the ERC chapter might be over, there are still potential tax benefits you can explore. The Consolidated Appropriations Act 2021 extended and expanded the Paid Sick Leave Credit and the Family Leave Credit. Hence, every employer providing paid sick and family leave to their employees will be eligible to take advantage of ERC benefits. It will be a wise decision to partner up with a tax professional at this moment so you do not miss out on any prospects of ERC advantages.
In Conclusion
The conclusion of the ERC eligibility period doesn't mean the end of tax credits and incentives for employers. By reviewing your eligibility, claiming the ERC correctly, maintaining accurate records, and planning for the future, you can maximize employee retention credit 2023. Remember that a tax professional like Claim ERC Credit can turn out to be your trusted navigator in this intricate tax world, ensuring your business is set up for success in the coming years.