Guide to the 2023 Employee Retention Tax Credit

As businesses across the country continue to recover from the economic impact of the COVID-19 pandemic, many employers are facing the challenge of retaining their workforce. To help offset some of the costs associated with retaining employees, the government has introduced the Employee Retention Tax Credit (ERTC).

The ERTC was first introduced in 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The credit was designed to encourage businesses to keep their employees on payroll by providing a refundable tax credit for wages paid to employees during the pandemic. The credit was extended and expanded in 2021 under the Consolidated Appropriations Act and the American Rescue Plan Act.

For the 2023 tax year, the ERTC remains in effect and provides eligible employers with a credit of up to $7,000 per employee per quarter for wages paid between January 1, 2023, and December 31, 2023. To be eligible, employers must have experienced a decline in gross receipts or been subject to a full or partial suspension of operations due to government orders.

Employers may claim the credit against the employer’s share of Social Security taxes, which is typically 6.2% of an employee’s wages, or against the employer’s share of Railroad Retirement taxes. Eligible employers can claim the credit on their quarterly employment tax returns, and the credit can be claimed for up to two years.

It is important to note that the ERTC cannot be claimed for the same wages that were used to claim other COVID-19-related tax credits, such as the paid sick leave credit or the paid family leave credit.

For businesses in California, there is an additional tax credit available. The California employee retention tax credit provides a credit of up to $1,000 per employee per quarter for wages paid between January 1, 2023, and December 31, 2023. To be eligible, employers must meet specific criteria and apply for the credit through the California Department of Tax and Fee Administration.

In conclusion, the Employee Retention Tax Credit can provide significant financial relief for businesses struggling to retain employees during the ongoing COVID-19 pandemic. With the credit available for the 2023 tax year, employers should review their eligibility and take advantage of this opportunity to offset the costs of keeping their workforce employed. Additionally, California employers may be eligible for an additional tax credit, providing further relief during these challenging times.