The Employee Retention Credit: What You Need to Know in 2023

The Employee Retention Credit: What You Need to Know in 2023

Discover the Employee Retention Tax Credit (ERC) to leverage incentives and cut your tax load this season.

By Austen Legler ・ 6 min read
Tax and Credits

The pandemic was rough for everyone. Many businesses went under, and too many people lost their jobs. COVID wreaked havoc on our lives and our economy.

Thankfully, we're bouncing back. And thanks to the ability to look backward, we can see what we might have missed. One of those things a lot of businesses - both big and small - have overlooked is the Employee Retention Tax Credit (ERTC). 

If your company managed to keep people working, the federal government is ready to reward you for keeping the lights on, or at least keeping people afloat when times were tough, even if everyone had to work from home. 

What is the Employee Retention Credit?

When President Biden took office, the Infrastructure Investment and Jobs Act introduced the Employee Retention Tax Credit (ERTC) program, a fully refundable payroll tax credit that essentially rewards businesses who kept employees on payroll during the months affected by the coronavirus pandemic.

The original window for the program closed back on September 30, 2021, while Recovery Startup Business stayed eligible to pay wages through December 31, 2021, to claim the credit. 

The problem? A lot of businesses didn't know this was even a thing! 

Because of the confusion around who was eligible to apply for the credit and so many businesses not accessing the money, the government extended the program by allowing companies to claim the ERTC for the next three years retroactively. 

What does it mean for your business?

If you kept most of your staff on payroll during the pandemic, the government essentially wants to reward you. If you kept most staff or even had a skeleton crew, chances are, you qualify. 

Qualification is determined by one of two factors:

  • Your business was fully or partially suspended or had to reduce hours due to a government order – either federal or local.
  • Your revenue declined by 20% or more in any quarter in 2021 compared to the same quarter in 2020 (or 2020 to 2019).

What does ERTC availability look like?

This credit is available to all employers – from enterprise to startup, even non-profits. There are only TWO exceptions to eligibility for the program: 

  • State and local governments and their instrumentalities
  • Small businesses who take Small Business Loans

How is the credit calculated?

As a means to not have a ton of red tape (and angry business owners), the government didn't make the process super complicated.  

So, the breakdown is pretty straightforward. For 2020, you can get back up to $5,000 per employee per year. For the year 2021 on the other hand, there’s a relatively simple provision that now allows you to claim up to 70% of qualifying wages paid up to $10K. This is just a more complicated way of saying you can get back up to $7,000 per employee, per quarter.

If your company had less than 100 employees, then the credit is based on the money paid to every employee. It doesn't matter if they worked or not, and it doesn't matter if your employees worked full time and paid for full-time work. You still get the credit. 

This is a massive win for small businesses. 

What if you had more than 100 employees?

This delineation is different. If your company had more than 100 employees on average in 2019, then the credit is only for wages paid to employees who didn't work during the calendar quarter. 

Whichever way you qualify, "wages" includes not just employee salaries but also a portion of employer-provided health care costs, as well. 

Again, for small businesses, this credit could be a game-changer. 

What about the "Recovery Startup Provision?"

Congress acted because the pandemic was brutal for so many businesses and people. To jump-start the economy and get it humming again, the ERTC was expanded, and this time it was for companies who braved the elements and started a business before the end of 2021. 

To be eligible for the Recovery Startup provision of the Employee Retention Tax Credit, you need to meet these two criteria:

  • Your business had average annual gross receipts of no more than $1,000,000 from 2018, 2019, and 2020
  • You started a new business after February 15, 2020

What's considered a "new business?"

Generally, this is what it sounds like – did you start a new company in the middle of the pandemic against the odds? This can be a trade, product, or service, even a new offering within an existing business. 

If you started a new business, that's awesome. But, to claim the ERTC, you might run into some questions. You're going to have to provide support for your claim. The more you can show proof that your business meets the qualifications, the stronger your claim will be. 

Now, granted, no claim is one-size-fits-all, but arming yourself with information is never a bad thing, especially when dealing with the U.S. Government.

If you're making a claim, you need to meet at least two of the following criteria:

  • Does your new business have a different name or brand?
  • Do you have a website or online presence? 
  • Can you show target customers? 
  • Can you show employees? 
  • Do you have specific bank records? 
  • Where is your office or facility?

You're going to need to answer at least two of these. We suggest having answers for all of them. 

How much is the Recovery Startup provision worth to my company?

Typically, the credit amount is 70% of qualified wages paid from the start of your new business or by July 1, 2021. 

Here's some quick information:

  • You can get up to $7,000 per employee per quarter.
  • The credit can't exceed $50K per quarter, with a maximum of $100K – if you've got eight employees making at least $40K a year, you can apply for the maximum credit.
  • The credit can be claimed for 2021's third and fourth quarters.

How do I actually claim the ERTC?

To claim the ERTC, you'll need to report your total qualified wages on your quarterly employment tax returns (Form 941). For quarters that are filed on time, you’ll include Form 941. For past quarters, you’ll use Form 941-X. 

And keep in mind, if you use a third-party for your payroll, you’ll need to coordinate with them to make sure the forms are properly filed.

What about audits?

No one wants to get audited. Plain and simple. That's why companies must play it smart and never try to double-dip into different programs unless a qualified entity (like us) tells you otherwise. 

 If you're interested in finding out if you're qualified for either portion of this credit program, TaxTaker can help. 

Click the link below to take our 2-minute online assessment.

Register for the webinar here

About the author

Austen Legler
Head of Partnerships

Austen Legler, an experienced marketer and sales professional, has worked with fortune 500 companies, startups, and more. As TaxTaker's Head of Partnerships, he leads the partnership strategy and is focused on building out TaxTaker's partner ecosystem.

Ready to Go Green and Save Green?

Use our estimator tool to calculate your potential 179D deductions and 45L tax credits

Get productivity tips straight to your inbox

Woo! Thanks for subscribing to our blog. Check your email for regular content updates and other cool stuff from TaxTaker.
Oops! Something went wrong while submitting the form.

We’ll email you 1-3 times per week—and never share your info.

Continue your reading with these value-packed posts

Go back to blog

Need more funding?

Our clients have raised billions of dollars in institutional funding & leverage additional funding sources to level up.
Get Started