Is there an employee retention tax credit for the 2022 tax year?
Businesses are still facing challenges from the ongoing COVID-19 pandemic. The government has introduced relief measures to help employers navigate these difficult times, including the Employee Retention Credit (ERC).
But is there an ERC for 2022? The short answer is no, there is no specific credit for the 2022 tax year.
However, yes you can still claim the employee retention credit in 2022, 2023, 2024, and 2025. This valuable refundable tax credit has been extended and enhanced, encouraging employers to retain their staff despite economic uncertainty.
Key ERC Credit Takeaways You Will Learn:
- Eligibility Requirements for Employee Retention Credit: Check if your business qualifies for this tax credit.
- Claiming the Credit: Understand the criteria and steps necessary to ensure eligibility.
- Eligible Employees: Find out which employees qualify for the credit.
- Meeting Specific Requirements: Familiarize yourself with the requirements to claim the credit.
- Leveraging the Credit: Maximize benefits by claiming up to $26,000 per employee.
See Important 2024 Employee Retention Tax Credit Deadline Information at the Bottom of This Article.
Understanding The Employee Retention Credit (ERC)
The Employee Retention Credit (ERC) is a refundable payroll tax credit that small to medium-sized businesses can claim for retaining their employees during the COVID-19 pandemic.
What The ERC Is
The Employee Retention Credit (ERC) is a relief measure introduced by the federal government to support small and medium-sized businesses affected by the COVID-19 pandemic.
This incentive allows eligible businesses to claim a percentage of qualified wages paid to employees during designated timeframes. For instance, in 2021, employers could receive a credit equal to 70% of an employee’s qualified wages, up to $10,000 per employee per quarter—potentially resulting in significant savings for struggling businesses.
Eligibility Criteria
Small to medium-sized business owners must meet certain criteria to qualify for the Employee Retention Tax Credit in 2022. These eligibility requirements include the following:
1. Demonstrating a significant decline in gross receipts: A significant decline is defined as a more than 20% reduction for any calendar quarter in 2022 compared to the same period in 2019.
2. Experiencing a partial or full suspension of operations due to a government order related to COVID-19: The suspension must have impacted the business’s ability to operate during the same calendar quarter.
3. Being a recovery startup business: Recovery startups are new businesses that started operations after February 15, 2020, and have annual gross receipts not exceeding $1 million.
4. Qualifying wages and employees: Qualified or employee wages include regular salaries, hourly pay, tips, commissions, and eligible health plan expenses provided by employers. Qualified employees work for the business full-time during the period credit is being claimed.
5. Not receiving Paycheck Protection Program (PPP) loan forgiveness: Businesses must ensure they have not received PPP loan forgiveness or utilize wages already covered by other COVID-19 relief programs when calculating qualifying wages for ERC.
By fulfilling these eligibility criteria, small to medium-sized businesses can take advantage of the work opportunity tax credit and the Employee Retention Credit and help reduce their financial burden during these challenging times.
Credit Amount
The Employee Retention Credit (ERC) provides substantial financial relief to eligible businesses in the form of a refundable tax credit. For 2022, the employer retention tax credit amount equals 70% of qualified wages paid per employee, up to a maximum limit, depending on the size and type of your business.
For small to medium-sized companies with fewer than 500 full-time employees, this limit is $10,000 per employee per quarter.
To illustrate how valuable this ERC could be for your business, let’s consider an example: Suppose you own a small retail store that has struggled due to COVID-19 restrictions and have ten full-time employees whose salaries qualify for the credit.
Based on the 70% calculation for qualified wages paid and assuming the maximum limit applies to each employee ($10,000), your business could potentially receive an overall ERC benefit worth $70,000 ($7,000 x 10).
Changes To The ERC For 2022
The ERC for 2022 has been expanded to include more eligible businesses, with an increased credit amount of up to $50,000 per quarter and an extended credit period until June 30, 2022.
Expanded Eligibility For Businesses
More businesses are now eligible to claim the Employee Retention Credit (ERC) for 2022. The Consolidated Appropriations Act 2021 expanded the eligibility criteria for employers who qualify.
Recovery startup businesses established after February 15, 2020 – with an annual gross receipt of less than $1 million – are now eligible for the credit.
Similarly, severely financially distressed employers or those with a significant decline in gross receipts can also claim ERC benefits even if they are not operating under suspension orders.
Small to medium-sized businesses can receive financial relief from the ERC regardless of their current operational status.
For example, let’s say your business started operations on March 1, 2021, and you meet other eligibility requirements, such as a reduction in revenue due to COVID-19 restrictions.
Overall, understanding the expanded eligibility criteria for ERC is essential for businesses seeking financial support in these uncertain times.
Increased Credit Amount
The Employee Retention Credit (ERC) has been expanded for 2022, with an increased credit amount available to eligible businesses. The maximum credit has been raised from $7,000 per employee to $10,000 for the first two quarters of 2022.
This increase in the ERC is great news for businesses struggling due to the ongoing effects of COVID-19. For example, a business with five employees could receive up to $70,000 in tax credits if they meet all eligibility requirements and qualify for the full credit amount.
Extended Credit Period
For the 2020 and 2021 tax filing years, the Employee Retention Credit (ERC) has been extended for eligible businesses. This means that businesses can claim a refundable tax credit of up to 50% of qualifying wages paid in 2020, and 70% of qualifying wages paid in 2021. Deadlines to claim the 2020 and 2021 ERC credit retroactively are April 2024 and April 2025.
Additionally, the maximum credit amount per employee has increased from $7,000 in previous years to $10,000 for each quarter in 2022.
This extended credit period allows businesses more time to benefit from the ERC and helps them retain their employees during ongoing economic uncertainties caused by COVID-19.
It’s important for businesses to accurately calculate their eligible wages and document all necessary information before claiming the ERC to avoid any potential issues or inaccuracies with their tax credits.
Interaction With PPP Loans
If you received a Paycheck Protection Program (PPP) loan in 2020 or 2021, you might still be eligible for the Employee Retention Credit (ERC). However, there are some important things to consider regarding the interaction between the two programs.
For example, any wages used to calculate your PPP loan forgiveness cannot be used for ERC purposes. In other words, if you claimed a certain amount of payroll costs on your PPP forgiveness application, those same costs cannot be used as qualified wages for ERC purposes.
On the other hand, if you did not claim all of your eligible expenses on your PPP application and had remaining qualified wages paid during an eligible period, you may be able to claim them towards your ERC.
It’s important to note that any employer portion of social security tax paid on these qualifying wages can only count towards one credit – either PPP forgiveness or ERC – but not both.
ERC Eligibility Requirements
Keep reading to learn more about the requirements for claiming the Employee Retention Credit, including eligibility criteria and qualifying wages.
Impacted By COVID-19
To be eligible for the Employee Retention Credit (ERC), businesses must have experienced a significant decline in gross receipts or been subject to a full or partial suspension of operations due to COVID-19.
A reduction in revenue can be demonstrated by comparing quarterly gross receipts from 2020 to the same fourth quarter amount’s gross receipts from 2019, resulting in at least a 20% decrease.
For example, suppose Emily’s small retail store had reduced sales due to government-mandated shutdowns and social distancing requirements that lasted three months out of the year in 2021 compared with her previous earnings for those same months in 2019.
In that case, she may be eligible for ERC benefits.
Reduction In Revenue
To be eligible for the Employee Retention Credit in 2022, businesses must have experienced a significant decline in gross receipts compared to a prior year. The threshold for this decline has been lowered from 50% to 20%, making it easier for more businesses to qualify.
For example, if a business had $100,000 in gross receipts in Q1 of 2019 and only $80,000 in Q1 of 2022 due to COVID-19 impacts or other reasons, it may qualify for the credit.
Businesses with a reduced gross receipts of up to 50% are eligible for a maximum credit of $7,000 per employee per quarter. In comparison, those with over a 90% reduction can claim up to $10,000 per employee per quarter. It’s important to note that the credit amount is tied to the revenue loss the business experienced.
Suspension Of Operations
One of the eligibility criteria for claiming the Employee Retention Credit is a suspension of business operations due to COVID-19. If a government order fully or partially suspended your business during any quarter in 2022, you might be eligible for the employee retention tax credit.
For example, a restaurant that had to close its indoor dining due to local restrictions could be considered as having suspended operations because they could not operate normally.
Similarly, a manufacturing company that had supply chain disruptions due to COVID-related restrictions could also be eligible for the credit.
Qualifying Wages And Employees
To be eligible to claim the Employee Retention Credit for 2022, businesses must meet certain qualifications regarding qualifying wages and employees. Here’s what you need to know:
1. Qualifying Wages: The credit applies to qualified wages paid between March 13, 2020, and December 31, 2021. For businesses with up to 500 full-time employees, the credit applies to all wages paid during this period. For larger businesses that experienced a significant decline in gross receipts in any calendar quarter of 2021 compared to the same quarter in 2019, only wages paid to employees who are not working may be eligible.
2. Eligible Employees: To qualify for the credit, employers must retain their employees and cannot use the credit for any employee related to the employer or owning more than a certain percentage of the business. Additionally, businesses that received PPP loans may still be eligible for the ERC but cannot claim it for the same wages used as payroll costs under PPP.
3. Maximum Credit: The maximum credit amount per employee is $7,000 per quarter for quarters one and two of 2021 ($14,000 total) and $10,000 per employee per quarter for quarters three and four of 2021 ($28,000 total). There is no limitation on qualified wages for businesses with an average of up to 500 full-time employees in 2019.
4. Refundable Payroll Tax Credit: The ERC is a refundable payroll tax credit that can be claimed on Form 941 or by filing an amended Form 941-X if applicable. Any excess credit after being applied against employment taxes is refundable.
5. Documentation: Businesses must maintain documentation showing how they determined eligibility for each employee and what qualifying wages were paid during each quarter claimed on Form 941 or amended quarterly payroll tax return only.
By understanding these qualifying wage requirements and guidelines for eligible employees, small to medium-sized business owners can claim the Employee Retention Credit and potentially receive a refundable tax credit for retaining their employees during the ongoing COVID-19 pandemic.
Calculating ERC Benefits
When calculating ERC benefits, businesses need to consider the credit amount and limitations, eligible wages and payroll taxes, and indirect costs included in the credit calculation.
Credit Amount And Limitations
The Employee Retention Credit for 2022 allows small to medium-sized businesses to claim employee retention credit of up to 50% of qualifying wages paid between March 13, 2020, and December 31, 2021. The credit equals a maximum of $10,000 per employee or $7,000 per employee if the business has more than 500 full-time employees.
Employers can claim a refundable tax credit of up to 70% of the qualified employee wages. However, it’s important to note that there are limitations on who is eligible for the credit and how much they can claim.
Businesses must meet certain qualifications, such as significant decline in gross receipts or suspension of operations due to COVID-19.
In short, while the Employee Retention Credit offers attractive benefits for small businesses affected by COVID-19 restrictions, employers must ensure they qualify and follow all regulations when claiming this valuable tax incentive from the government.
Eligible Wages And Payroll Taxes
To be eligible for the Employee Retention Credit (ERC), businesses must have paid qualifying wages to their employees during certain periods. Qualifying wages are determined based on the business size and whether COVID-19 impacted it.
All wages paid qualify for the credit for small businesses with 500 or fewer employees.
Payroll taxes can also be included in calculating the ERC benefits. This includes federal income tax withheld from employees and the employer’s and employee’s share of social security and Medicare taxes.
It is important to note that employers cannot claim the ERC and Paycheck Protection Program (PPP) loans for the same period.
Indirect Costs Included In The Credit Calculation
In addition to direct wages, businesses can include indirect costs when calculating the Employee Retention Credit. These indirect costs include employer-provided health plan expenses and qualified sick leave or family leave wages under the Families First Coronavirus Response Act (FFCRA).
However, these costs cannot be claimed for the ERC and another COVID-19 tax credit. It’s important for businesses to carefully review their expenses and ensure they are not double-dipping on credits.
How To Claim The ERC In 2022
To claim the ERC in 2022, eligible employers should file Form 941-X for each quarter in which they are claiming the credit and provide supporting documentation to show their eligibility.
Filing Requirements
To claim the Employee Retention Credit for 2022, eligible small to medium-sized businesses must file Form 941, Employer’s Quarterly Federal Tax Return, for each quarter they wish to claim the full employee retention credit refund amount.
The credit can be claimed on a timely filed Form 941 or an adjusted employment tax return. To ensure proper documentation of qualified wages paid and potential certification requirements, it’s important to maintain detailed payroll and employment records.
Employers who received a Paycheck Protection Program (PPP) loan are still eligible for the ERC; however, employers cannot use the same wages used in determining PPP loan forgiveness as qualified wages for ERC purposes.
Required Documentation
To claim the Employee Retention Credit in 2022, businesses must submit the required documentation to the Internal Revenue Service (IRS). This includes supporting records and documents to prove eligibility, such as proof of a decline in gross receipts or suspension of operations due to COVID-19.
Additionally, businesses should keep accurate payroll records and tax filings for reference when claiming credit. These records could include quarterly payroll tax returns, Form 941, and annual Forms W-2 and W-3.
Having proper documentation readily available when applying for the Employee Retention Credit allows small business owners to increase their chances of receiving maximum benefits from this refundable payroll tax credit.
Timeframe For Claiming The Credit
To claim the Employee Retention Credit for 2022, businesses must file Form 941, Employer’s Quarterly Federal Tax Return, and claim the credit on their payroll tax returns.
The deadline for claiming the credit is not specified in the sources available at this time. However, businesses can also amend their previous quarterly returns to claim credits they may have missed.
Ensuring that all required documentation is included when filing for the credit is important to avoid delays or issues.
Amended Return Process
If you have already filed your tax return for 2022 but believe you are eligible for the Employee Retention Credit, don’t worry – an amended return can still be filed to claim the credit.
It’s important to note that amended returns can take longer to process than regular returns, so it’s best to get everything submitted as early as possible. Additionally, if you’ve already received a PPP loan and used those funds towards payroll costs, keep in mind that these funds cannot be double-dipped when calculating your ERC.
Opportunities And Risks Of Claiming ERC Program 2022
Claiming the Employee Retention Credit can provide significant financial benefits to eligible businesses. However, it’s important to understand the potential risks and implications for other COVID relief programs, tax liability and refundability, and financial reporting and planning.
Impact On Other COVID Relief Programs
Claiming the Employee Retention Credit (ERC) can impact other COVID-19 relief programs. One such program is the Paycheck Protection Program (PPP), as businesses cannot claim both credits for the same wages.
If a business receives PPP loan forgiveness, they are not eligible for ERC on those same wages.
It’s important to note that claiming one credit over another does not necessarily mean giving up all benefits from the other program. For example, businesses can still take advantage of paid sick, and family leave tax credits while claiming ERC.
Effects On Tax Liability And Refundability
Claiming the Employee Retention Credit may affect a business’s tax liability and refundability. This credit is fully refundable, meaning that if the credit exceeds a business’s federal employment taxes due, it will receive the excess as a refund.
Refundable credits are valuable to businesses, especially those facing financial burdens.
It’s essential to be aware of the implications before claiming the Employee Retention Credit to avoid future complications with tax filings or financial reporting. Business owners should consult with their tax advisors or professionals regarding their specific situations to take advantage of this opportunity effectively.
Implications For Financial Reporting And Planning
Claiming the Employee Retention Credit (ERC) for 2022 may significantly affect a business’s financial reporting and planning. The ERC is a refundable tax credit that can help businesses keep their employees on the payroll during the COVID-19 pandemic.
For instance, if you claim too much of the ERC, you could owe more taxes than expected or reduce your refund amount. Additionally, businesses must accurately calculate and document their qualified wages paid to eligible employees to avoid penalties or audits by the IRS.
Therefore, it’s advisable to consult with a tax professional and review your records carefully before claiming the ERC. Also, make sure to update your budgets and forecasts accordingly when receiving these credits, as they impact your business’s cash flows and net income.
Common ERC Mistakes To Avoid
Avoid common mistakes when claiming the Employee Retention Credit, such as not understanding eligibility requirements, improper calculation and documentation, and inaccurate filing of forms and documents.
To ensure you receive the maximum benefit, staying informed about the most up-to-date guidance from the IRS is important.
Understanding Eligibility Requirements
To be eligible for the Employee Retention Credit in 2022, businesses must meet specific qualifications. Eligible employers must have experienced a decline in gross receipts or suspended operations due to COVID-19 during any quarter of 2020 or 2021.
Additionally, qualifying wages must be paid to eligible employees under certain circumstances.
It is crucial for small to medium-sized business owners to carefully evaluate their eligibility and ensure they meet all requirements before claiming the ERC. Failing to comply with these requirements can result in tax liability and refundability complications.
Proper Calculation And Documentation
To claim the Employee Retention Credit, it is crucial to accurately calculate and document your business’s qualified wages. Proper documentation includes payroll records showing the number of employees, their respective hourly rates, social security taxes paid for each employee, health insurance costs, and more.
Business owners should also ensure they are correctly calculating eligible wages since only specific types of compensation can be claimed towards qualifying wage expenses.
Failing to properly calculate and document your Employee Retention Credit could result in a rejected claim or, even worse- an IRS audit.
Accurate Filing Of Forms And Documents
Accurate filing of forms and documents is crucial when claiming the Employee Retention Credit (ERC) for 2022. Employers must provide correct information on their payroll tax returns, including Form 941 and Employer’s Quarterly Federal Tax Return.
To avoid mistakes, businesses should consult with a qualified tax professional or use reliable software to help them file accurate forms and documentation.
Inaccurate filings could negatively impact other COVID relief programs, such as PPP loan forgiveness, or have implications for tax liability and refundability.
Other COVID-19-Related Refundable Tax Credit And Incentives
In addition to the Employee Retention Credit, other COVID-19-related tax credits and incentives are available for businesses, including the Paid Sick and Family Leave Credit, Vaccine Credit, Health Plan Expenses Credit, and state and state and local employee retention tax credits and incentives.
Paid Sick And Family Leave Credit
In addition to the Employee Retention Credit, small to medium-sized businesses may also be eligible for the Paid Sick and Family Leave Credit. This credit is available for employers who provide paid sick or family leave related to COVID-19 between April 1, 2021, and September 30, 2021.
The credit amount varies depending on the type of leave taken and the employee’s pay rate.
It’s important to note that this credit is only available for certain qualifying reasons relating to COVID-19, such as caring for someone under quarantine or experiencing symptoms of COVID-19.
Employers must have less than 500 employees and meet other qualifications in order to be eligible for this credit.
Vaccine Credit
The Vaccine Credit is a tax credit available to small and medium-sized businesses that provide paid time off for employees getting COVID-19 vaccinations. This credit can help offset the financial burden of providing vaccination-related leave and encourage employees to get vaccinated.
To be eligible, employers must have fewer than 500 employees. They must offer up to 80 hours of paid sick leave or expanded family medical leave for reasons related to COVID-19, including vaccine-related absences.
The Vaccine Credit offers an incentive for businesses to prioritize employee health and safety during these uncertain times while also receiving a tax benefit. By offering paid time off for vaccinations, businesses can demonstrate their commitment to public health and encourage more people in their community to get vaccinated against COVID-19.
Health Plan Expenses Credit
The Health Plan Expenses Credit is another COVID-19-related tax credit available to small and medium-sized businesses. Businesses that kept their employees on their health insurance plans during temporary shutdowns or reduced work hours can claim a refundable tax credit of up to 50% of qualified health plan expenses.
To be eligible for the Health Plan Expenses Credit, employers must meet certain qualifications, including being negatively impacted by the pandemic and maintaining at least one full-time employee.
Like other COVID-19 relief programs, risks and opportunities are associated with claiming this credit, such as the impact on tax liability and eligibility for other incentives.
State And Local Tax Incentives
In addition to the Employee Retention Credit, small to medium-sized businesses may also be eligible for state and local tax incentives. These incentives vary by location and can include tax credits, exemptions, or reductions on certain taxes, such as property or sales taxes.
For example, some states offer tax breaks for hiring employees from designated groups like veterans or long-term unemployed.
However, business owners must research and ensure they meet all requirements before applying for these incentives. Some programs may have specific eligibility criteria to meet before a business can receive the benefits.
It’s also essential to properly document all transactions related to this program since any discrepancies could result in penalties or legal action.
Conclusion and Summary for Employee Retention Credit in 2022 Tax Filing Year
In conclusion, small to medium-sized businesses (SMBs) can benefit from the Employee Retention Credit for 2022 as it has been expanded and improved with increased eligibility criteria, credit amount, and extended period.
However, caution must be taken when claiming the credit to avoid mistakes that could affect tax liability or other COVID relief programs. Business owners should consult their tax advisors and utilize resources such as IRS guidance and FAQs to ensure they meet eligibility requirements and correctly calculate the credit.
Good news. There is still time to file! The employee retention tax credit can still be claimed retroactively and there is still time to file, even in 2023, 2024, and 2025 for the past tax years.
Employee Retention Tax Credit (ERC / ERTC) Help: Claim Up To a $26,000 Refund Per Employee for Your Business
Disaster Loan Advisors™ can assist your business with the complex and confusing Employee Retention Credit (ERC) and Employee Retention Tax Credit (ERTC) program, without you having to pay an excessive percentage of your hard earned ERC refund.
DLA doesn’t charge a percent like many companies do. Our flat fee structure is fair and reasonable based on the amount of work involved. Keep More of Your Refund™
Depending on eligibility, business owners can receive up to $26,000 to $33,000 per employee based on the number of W2 employees you had on the payroll in 2020 and 2021.
The ERC / ERTC Program is a valuable IRS tax credit you can claim. This is money you have already paid to the IRS in payroll taxes for your W2 employees.
Schedule Your Free Employee Retention Credit Consultation to see what amount $ of employee retention tax credit your company qualifies for.
ERC Deadline Urgency in 2024
April 15, 2024 Deadline for the 2020 ERC Tax Year
The deadline is coming up for the final opportunity to retroactively claim your business Employee Retention Credit for the past 2020 tax year. With the April 15, 2024 deadline fast approaching, we urge you; don’t let this final chance pass!
While not all businesses will qualify, as it depends on multiple factors per IRS Rules and Guidelines, you might be leaving significant financial relief on the table from prior COVID impact to your business during the past 2020 and 2021 business operation years.
Last year, in September 2023, the IRS temporarily paused processing ERC Claims for the remainder of last year. We at Disaster Loan Advisors (DLA) predicted this over one year ago when we made this ERC video warning business owners. See the ten-minute mark of the video for details.
TAKE ACTION NOW IN 2024
Even though the IRS has temporarily paused processing, you will still want to check eligibility and file now (if you qualify) because once the IRS will resume processing, ERC tax credit claims are processed in the order they are received.
If you haven’t previously filed for the ERC Credit, it is worth scheduling a phone call to at least explore your possible eligibility from both the past 2020 and 2021 business tax years. Contact us today for a deep-dive analysis to determine if your business qualifies one or more quarters from the 2020 and / or 2021 tax years.
As a leading dedicated member of the Tax and Accounting Team at Disaster Loan Advisors™, Mark focuses on unlocking the ERC Tax Credit's potential for eligible firms that qualify, providing strategic advice, and detailed guidance to ensure substantial financial recovery and growth. His methodical approach to client engagement includes comprehensive deep-dive analysis, customized consultation and guidance, and a commitment to achieving tangible results for each business served.
Disaster Loan Advisors™ (DLA) offers a comprehensive suite of services designed to navigate the complexities of the Employee Retention Tax Credit (ERC) program, ensuring that qualified businesses leverage the maximum possible benefit with minimum hassle. Unlike some firms that charge exorbitant contingency or percentage-based fees (often between 10% to 30% of your ERC refund), DLA operates on a fair and reasonable, transparent flat-fee structure that aligns with the IRS's guidelines.
If you are looking for an ERC Company that believes in providing professional ERC Services and value for small business owners, in exchange for a fair, reasonable, and ethical fee for the amount of work required, Disaster Loan Advisors™ is a good fit for you. STAY SAFE. STAY COMPLIANT. KEEP MORE OF YOUR REFUND.™
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