Introduction
When the Covid 19 pandemic hit, the entire globe felt the repercussions of this hazardous airborne virus, and due to its nature and the rate at which it was spreading around the world, entire cities and countries went into a state of lockdown.
Due to the introduction of social distancing amidst the lockdown, many businesses adopted a work-from-home workplace model, which benefits both employees and businesses.
However, it proved to be a little too beneficial for the employees because they started to understand the financial advantages of working from the comfort of their homes, which resulted in a boom in the concept of freelancing.
Many office employees started to create work setups at home. They shifted their work to freelancing, resigning from their current jobs as it proved less beneficial in many ways, resulting in employee retention across the globe taking a major hit.
So much so that it gave birth to a phenomenon known as the ‘great resignation, ‘ which highlighted the period during which an astronomical amount of employees resigned from their office job and opted to work from home permanently.
Furthermore, most small-scale businesses could not handle the losses due to the lockdown, which resulted in them having to shut down operations. The government recognized these as a threat to their economy and introduced the employee retention credit program, also known as ERC.
Let us discuss this in a bit more detail, understand exactly the concept behind employee retention credit 2023, discuss the deadlines that must be met, and also explore the myths and misconceptions people may have regarding the Employee Retention Tax Credit in 2023.
What Is the Employee Retention Credit Program?
Before discussing the misconceptions centered on the idea of employee retention credit, it is vital to first understand the concept behind this and take a closer look at the concept surrounding it.
Congress established this program as an initiative for the Coronavirus aid relief and economic security act, also known as CARES, which provided businesses with an incentive and encouraged businesses to keep their workers employed during the pandemic.
How the ERC program works is that it provides small businesses that had to scale back and downsize due to losses suffered during the pandemic with provisions as a relief to promote employee retention.
As per the regulations stated in the program, the government provides these kinds of businesses and workplaces with a 50% payroll tax credit which you can refund.
However, this only applies to the wages the employees have been paid in the form of full-time pay, and it only applies to the finances accumulated in the form of wages after the lockdown occurred, which is around March 13, till the end of the year.
The main selling point of employee retention credit 2023 is that, because the tax credit is refundable, you can profit from this and earn several folds more than what you paid as payroll tax for your employees in the form of cashback.
How is that so? An example that can better explain this is that if you are a business owner who was affected by this program and qualified for $50,000 for this program, you would still be eligible for the entirety of those funds even if you paid payroll tax of a lesser amount, resulting in an overall profit.
The employee retention credit deadline is 2023
As the ERTC deadline for these small business owners to file for this program is almost upon them, they should gather the necessary documents and submit their applications to pursue the refundable payroll tax credit.
As per the terms and conditions surrounding the Employee Retention Credit program, they should be filed quarterly.
For the last quarter around which most of the business would be eligible to avail the tax, the deadline to file the ERTC has been determined to be in October 2024.
This may seem like a long time, but the good news for those seeking a return for the ERC is that it has been observed that the time that the government takes to compensate most of the companies has been reduced, which each quarter passing by.
Myths and Misconceptions Surrounding ERC
The complex regulations that center on the many elements used to determine whether a business is qualified to receive a refund lead to many clashing opinions, which later develop into misconceptions.
This is partly because most of the legislations that govern the program are increasingly complex and vague and can sometimes contain contradictory regulations.
Because of this ambiguity surrounding the idea of Employee Retention Credit, many different myths and misconceptions developed, leading to confusion among many business owners.
Let us discuss this in a bit more detail, understanding some of the more common misconceptions regarding ERTC tax credit 2023.
- Requirement To Have Revenue Declines
One of the most common assumptions that people submitting for ERTC have is that to qualify for the refund, they must report a negative dent in their finances to show that they had to downsize due to suffering during the pandemic.
However, that is incorrect, and any employer is eligible to collect ERC even if they do not have any adverse results on their record and have not passed the gross receipts test.
A business may pass this test for a tax year if the net amount comprising of the receipts which they accumulate on an annual basis for the three years for the ERC in a manner that does not exceed the amount of $25,000,000.
As discussed earlier, this program was launched as a part of the CARES act. Although they have stated that negative net revenue is not required to be accepted for ERTC, many still overlook this legislation due to the complexity and detail in the regulations surrounding ERC.
- Complete Shutdown in Operations Is Required
Because the ERTC program was launched during the time of lockdown and aimed towards the businesses which completely halted their operations due to the lockdown, many employers seemed to get the idea that only those small-scale business owners would be able to advantage of the refund, whose operations completely shut down during that time.
However, that is not the case, and the legislation clearly states that any employer can qualify for ERC even if they have suffered financial losses but are still partially operational.
An example is if a restaurant was forced to close down their premises due to the lockdown, but they were still open for takeaways and had the option to get food delivered, they would still be applicable to collect ERC, even though they did not fully shut down.
In relation to this, another myth that many business owners usually believe is that ERC does not apply to any essential business, such as departmental stores, because they never completely shut down, even in the midst of the pandemic.
Furthermore, the fact that the official FAQ section for the ERC stated that these businesses could not rely on legal authorities in these matters further solidified this misconception to be true, but the FAQs have been updated since then.
- Universities and Other Educational Institutes Do Not Qualify
Since educational institutes like colleges and universities were still operational in the form of online classes during the Covid pandemic, there is a misconception that these establishments were not eligible to collect a refund on their payroll tax.
However, these institution owners are unaware of the legislation updates that have occurred since this CARES act was launched. Otherwise, they would have known that recent updates to the legislation highlighted governmental employer exclusion, removing public colleges and universities.
This change in the exclusion regulation meant that these educational institutes could also apply for ERC.
- Companies Exempted From Taxes Could Not Apply
Due to the nature of this program, another misconception flying around in the market stated that those companies which did not have to pay taxes were not qualified for ERC.
However, many sections in the legislation covered by the ERC state that even those organizations exempted from paying any sort of tax could apply for ERC as well.
Wrap-up
Due to the technicalities and the different ways the ERC legislation can be interpreted, there are misconceptions and myths surrounding this program. However, the aforementioned in this article should provide you with significant clarification on this matter and help you understand ERTC and its eligibility criteria in greater detail. If you have questions, you should consult with a professional regarding Employee Retention Credit in greater detail before making any drastic decisions.
