ERC Eligibility: What Are the Qualified Wages for Employee Retention Credit in 2023?
Businesses cannot fully undo the financial losses inflicted by the COVID-19 pandemic. However, the Employee Retention Credit (ERC) continues to be a vital incentive for employers that strived to maintain a stable workforce during the turbulent times. If you kept your staff on the payroll in 2020 and/or 2021, you may enjoy ERC eligibility for refundable tax credits for qualified wages. What’s more, you could get up to $26,000 in cash for each employee! But what are qualified wages for Employee Retention Credit?
Who Qualifies for ERC?
ERC eligibility (and amount of refund) can vary depending on many factors. These include when and for how long the business was affected. Generally, employers that qualify for Employee Retention Credit filing are those that:
- Were fully or partly shut down due to a government order in 2020 or the qualifying period (first three quarters) of 2021.
- Experienced a significant reduction in quarterly gross receipts. Employers can determine this decline by comparing a given eligible period of 2020 or 2021 to the same period of 2019.
- Paid qualified wages to employees.
What Wages Qualify for Refundable Tax Credits?
Any taxable wages paid to W2 employees – including hourly and salaried wages and vacation pay, along with certain health plans may qualify as eligible expenses in the Employee Retention Credit calculation. They just need to have been paid in accordance with the above guidelines and not forgiven under the Payment Protection Program.
Are Tips Included in ERC Eligibility?
Some tips can be counted towards the ERC. However, only those reported as taxable income can be considered ERC qualified wages. Reportable tips are those that exceed $20 (per employee) in a calendar month. In other words, anything under that amount would not qualify for Employee Retention Tax Credit. It’s important to note that qualifying rules for tips can vary from industry to industry. We recommend seeking help with Employee Retention Credit from an expert in ERC. Tips as wages can be a tricky topic. It’s best to get a professional opinion around tips included in ERC and the specific tips to include or exclude from your ERC application.
ERC Qualified Wages: 2020, 2021, and Beyond
Under the ERC program, whether a business is considered small or large depends on the average number of full-time employees (employees who have at least 30 hours of work per week or 130 hours each month) it had per month in 2019:
- For 2020 wages, small employers are considered those that had 100 or fewer full-time employees (FTEs), while larger employers are considered those averaging more than 100 FTEs.
- For 2021, small employers are defined as those with an average of 500 FTEs or fewer, while businesses averaging more than 500 FTEs fall under large employers.
Small employers have a leg up when it comes to determining ERC qualified wages. Specifically, they can claim credits for wages paid to all employees – whether an employee was providing services or not during a qualifying period. In contrast, most large employers can only file for wages paid to employees not providing services. Businesses that wish to apply for Employee Retention Credit must understand this crucial distinction, so they can accurately assess their eligibility and increase their chances for approval.
Is Your ERC Claim Backed By Accurate Wages? Discover Your Eligibility Now!
Knowing whether your wages meet the criteria to qualify for ERC is a fundamental step in determining your ERC eligibility for the program and streamlining the ERC application process. Have questions on how to qualify for ERC? Need more information on how to calculate Employee Retention Credit? Or simply want someone to walk you through the process of filling out 941-X? Feel free to reach out to experts at Headcount ERC. We’re here to ensure you have the right information so you can make accurate and hassle-free filings. The best part? We don’t get paid until you do!
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