The Employee Retention Credit (ERC) in a Post-Pandemic World: New Considerations for 2023
The Employee Retention Credit (ERC) has been a key tool for businesses to retain their employees during the pandemic. As the economy recovers and we move towards a post-pandemic world, there are new considerations that businesses should keep in mind when it comes to the ERC. In this blog post, we will explore these new considerations and how they might impact your business in 2023.
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What is the Employee Retention Credit?
The Employee Retention Credit is a refundable tax credit that was introduced as part of the CARES Act in 2020. It was designed to provide financial relief to businesses that were impacted by the pandemic and had to either suspend or reduce their operations. The credit is equal to 50% of qualified wages paid to employees, up to a maximum of $10,000 per employee. Businesses can claim the credit on their quarterly employment tax returns.
Changes to the Employee Retention Credit for 2023
Eligibility Criteria
One of the biggest changes to the Employee Retention Credit for 2023 is the eligibility criteria. In order to qualify for the credit, businesses must now demonstrate a decline in gross receipts of at least 20% in the current quarter compared to the same quarter in 2019. This is a higher threshold than in previous years, which required a decline of at least 50%.
Maximum Credit Amount
Another change to the ERC for 2023 is the maximum credit amount. The credit is now limited to $7,000 per employee per quarter, which is lower than the previous maximum of $10,000. This means that businesses can claim a maximum of $28,000 per employee for the entire year.
PPP Loans
Businesses that received a PPP loan in 2020 or 2021 are now eligible for the Employee Retention Credit, but there are some restrictions. For example, businesses cannot claim the credit for wages that were paid with PPP loan proceeds that were forgiven. Additionally, businesses cannot claim the credit for the same wages that were used to calculate the Shuttered Venue Operators Grant.
How Can Businesses Prepare for the Changes?
Now that we know what the changes to the Employee Retention Credit are for 2023, it's important for businesses to start preparing. Here are some steps that businesses can take:
- Review your gross receipts for the current quarter and compare them to the same quarter in 2019.
- Ensure that you have accurate records of all qualified wages paid to employees.
- Consider consulting with a tax professional to ensure that you are claiming the credit correctly.
- Stay up-to-date on any additional changes to the ERC that may be announced in the future.
By taking these steps, businesses can ensure that they are prepared to claim the Employee Retention Credit in 2023 and maximize their financial relief.
Conclusion
The Employee Retention Credit has been a valuable tool for businesses during the pandemic, and it will continue to be important in a post-pandemic world. However, with the changes that have been made for 2023, businesses need to be aware of the new eligibility criteria, maximum credit amount, and restrictions for PPP loan recipients. By preparing now, businesses can ensure that they are able to claim the credit correctly and receive the financial relief that they need.
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