You can still apply for the Employee Retention Credit in 2023. This important benefit remains available to employers in this year, as long as they have made payments for qualified wages and benefits during the period from March 13, 2020, to the end of 2021. This refund, designed to support businesses during economic challenges, provides a significant opportunity to alleviate labor costs and promote employee retention to a wide range of items.

If your business has faced a partial or complete suspension due to a government order related to the COVID-19 pandemic, you also qualify.  However, despite its apparent simplicity, there are important nuances you should grasp, and the rules have undergone slight changes between 2020 and 2021 ,  we tell you how to claim the Employee Retention Credit ( ERC ). To ensure you make the most of this credit, it is crucial to understand the specifics and how they apply to your unique situation.

Employers, including tax-exempt organizations, qualify for the Employee Retention Credit if they meet the following criteria during the 2020 calendar year:

Experienced a full or partial suspension

Of their trade or business during any calendar quarter due to governmental orders that restricted commerce, travel, or group gatherings due to COVID-19.

Suffered a significant decline in gross receipts.

Understanding whether your business operations faced a suspension due to government actions is straightforward, as many companies temporarily shut down or scaled back in response to these measures. Unfortunately, some are still navigating the financial challenges posed by these restrictions.

The eligible employers are required to provide detailed information about their qualified wages and related healthcare costs for each respective quarter when submitting their quarterly payroll tax returns. For most employers, this is done through Form 941, starting from the 2020 third quarter onwards. The credit is deducted from the employer's portion of social security tax. In summary, the following documents are required:

• Form 941 or (941X if apply) from the 2020 third quarter .

• Payroll journal detailed for each employee, and each quarter . 

The IRS has issued a relevant press release that now allows "deductions for eligible expense payments when these payments are expected to result in the forgiveness of a covered loan." The guidance under the CARES Act has been amended to clarify that no deduction is denied, no tax attribute is reduced, and no basis increase is denied due to the exclusion from gross income arising from the forgiveness of a covered loan granted to an eligible recipient.

As a result, businesses now have the opportunity to apply for both the Employee Retention Credit and the PPP simultaneously.

When addressing the question of whether ERC credits count as taxable income, it's important to note that ERC credits themselves are not considered taxable income directly. However, these credits do impact payroll deductions, which, in turn, influence the overall taxable income.

For accurate and proper tax filing, it's crucial to understand the interconnectedness between ERC credits and taxable income. This understanding is essential when completing relevant tax forms, such as Form 1120-S and Form 1065. The extent of the ERC's impact on tax filings varies depending on the amount claimed through the credit, payroll expense deductions taken during the year, and the legal structure of the business entity in question.

The IRS may conduct audits related to the ERTC if there are suspicions of errors, omissions, or potential misrepresentations in the claims submitted by businesses. These audits not only seek calculation errors but also suspicious situations of fraud or tax non-compliance.

Several factors can trigger an ERTC audit, such as:

• Incorrect or incomplete information provided in tax filings, such as Form 941 or Form 8974.

• Inconsistencies or discrepancies between the amount of ERC claimed and other financial data, like payroll records, financial statements, and tax returns.

• Excessive or inadequately supported claims that do not meet the qualifying criteria established in the CARES Act, such as eligible wages and the number of employees.

• A previous history of non-compliance with tax laws or regulations, which could increase the likelihood of an ERTC-related audit.

With the increasing popularity of the Employee Retention Credit Program, scams have also emerged, targeting unsuspecting businesses. The IRS has issued warnings to raise awareness about the importance of staying vigilant and protecting against these schemes. Despite the Employee Retention Credit being a legitimate opportunity, it is essential to be aware of the most common fraudulent tactics used by scammers:

• Deceptive Phone Calls: Scammers reach out to employers via phone, making false claims about eligibility for the ERC. They often attempt to persuade employers to disregard government-established requirements and charge excessive fees for unnecessary services, even if the company meets the criteria for the credit.

• False Claims: Scammers submit ERC claims on behalf of legitimate businesses and then appropriate a significant portion of the credit.

• Identity Theft: Targeting businesses that are ineligible for the ERC, scammers obtain confidential information and use stolen identities to fraudulently apply for the credit.