The Employee Retention Credit 2023: A Crucial Lifeline for Businesses
When the business and finance landscape changed due to COVID-19, government programs played a pivotal role in helping small businesses weather unprecedented challenges. One such program that has gained prominence in recent years is the Employee Retention Credit (ERC). As we step into 2024, the ERC program remains a critical lifeline for businesses, offering financial relief and incentives. In this blog, we will explore the ERC and how it has proved to be a crucial lifeline for small and medium sized businesses.
Understanding the ERC
The Employee Retention Credit, often referred to as the ERC tax credit, is a federal tax credit program introduced by the U.S. government to provide financial relief to businesses during challenging economic times, such as the COVID-19 pandemic. The ERC program encouraged businesses to retain their employees by offering tax credits for wages paid to eligible employees.
To apply under the ERC program, businesses are required to submit a payroll tax amendment by completing IRS Form 941-X for each quarter during 2020 and 2021 in which they retained employees. Several companies are still meeting the eligibility criteria and stand to gain a maximum of $5,000 per employee retained in 2020 and up to $7,000 per employee for the initial three quarters of 2021. In aggregate, your business may be eligible to receive a sum of up to $26,000 per employee who remained on the payroll during this two-year period.
Employee Retention Credit in 2023: Key Features and Developments
In 2023, the ERC continued to play a vital role in supporting businesses recovering from the economic impacts of the pandemic. However, there have also been some developments in the ERC processing to ensure that businesses get their tax credit after adequate due diligence.
The IRS has recently put a moratorium on ERC processing new claims till the end of 2023. This is a crucial step in preventing improper and fraudulent use of the ERC benefits. The IRS announced on July 26 that it was intensifying the scrutiny of claims for compliance issues, which includes stepping up audit activities and initiating criminal investigations against promoters and businesses suspected of filing questionable claims. The IRS is also actively pursuing several criminal cases and has referred thousands of ERC claims for further audit. With this strict scrutiny and audit in place, the processing times are likely to go up from 90 days to 180 days. In Omega’s experience, given the further scrutiny, we expect these timelines to be even longer.
Other features of the ERC in 2023
- Eligibility Criteria: The eligibility criteria for businesses to qualify for the ERC includes businesses that not only had to curtail operations partially or completely due to a government order, but also if they experienced business disruptions.
- Support for businesses of all sizes: The intention behind the ERC was to incentivize businesses of all sizes to maintain their workforce and refrain from downsizing or laying off employees.
- ERC has a deadline: The ERC is a time-limited program and is expected to end. The deadline for the 2020 tax periods is established for April 15, 2024, while for the 2021 tax periods, the deadline is scheduled for April 15, 2025.
Significant benefits
On May 5 this year, the World Health Organization (WHO) declared that the pandemic was officially over. During the three-year period, the foremost advantage of the Employee Retention Credit for small businesses lies in alleviating the burden of substantial payroll taxes, thereby infusing their operations with additional liquidity to sustain their enterprises.
Furthermore, a noteworthy benefit is the ability to concurrently leverage ERC even if they received a Payment Protection Program (PPP) loan. Businesses can now synergize the benefits of both their PPP loans and the Employee Retention Credit. It is important to note, however, that the ERC calculation is separate from the determination of employee salary used for PPP loan forgiveness. These two components must be considered independently to optimize their respective advantages.
ERC in 2024: How You Can Leverage ERC for Workforce Support and Business Growth
As we enter 2024, the Employee Retention Credit continues to be a lifeline for businesses, offering several key benefits. First, the ERC provides businesses with much-needed financial stability. By receiving tax credits for retaining employees, businesses can allocate resources to other critical areas of their operations, such as expansion and innovation.
- Support for Recovery: In a post-pandemic world, many businesses are still on the path to recovery. The ERC program acts as a buffer, helping businesses gradually regain their financial footing.
- Economic Stimulus: By incentivizing businesses to retain employees, the ERC also stimulates economic growth at the grassroots level. When employees remain employed, they continue to spend in their communities, supporting local businesses.
- Business Confidence: Knowing that the ERC program is available, albeit for a limited time period, can boost business confidence. It provides a safety net that allows businesses to plan with greater certainty for a better future.
- Employee Retention: As the name suggests, the ERC encourages businesses to retain their workforce. Businesses can take advantage of the money to retain employees, retrain them, and encourage employee loyalty for enhanced productivity within the company.
Looking Ahead
The ERC tax credit has proven invaluable for businesses navigating uncertain economic times. By offering financial relief and incentives for employee retention, this program not only supports businesses but also contributes to economic stability and growth. As we move forward in 2024, it's essential for businesses to stay informed about the program's details and take full advantage of this crucial lifeline. The ERC program is more than just a tax credit; it's an added advantage for businesses to thrive in challenging times.
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