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Everything That Businesses Need To Know About ERC Tax Credits

By | Zoya Maryam

The Employee Retention Credit (ERC) is a tax credit available to employers of various organizations. The ERC is aimed at helping companies retain their valuable employees by incentivizing employers who hire and retain workers with high salaries and skills. 

This tax credit helps businesses offset the cost of hiring and retaining employees. Unlike the Work Opportunity Tax Credit (WOTC), the ERC is a tax credit that can be applied to the business’s taxes for up to 36 months after hiring.

In this article, you can learn about the latest updates on ERC tax credits

A Brief Explanation of ERC Tax 

The ERC tax credit is a federal tax credit that employers can claim. It means that businesses won’t get the money back directly from the government, but they will save money on taxes. This tax credit is also non-refundable. That means it can’t be used to bring company taxes down below zero dollars. 

The ERC incentivizes employers to hire disadvantaged workers, including veterans and individuals from low-income families. It allows companies to claim up to $9,600 per year per employee hired in this category.

Latest Updates on ERC Tax Credits

The ERC tax credit was extended through 2020. However, there are a few key points to keep in mind.

It is a payroll tax credit available to employers who hire a disabled person working at least 20 hours per week or have been hired for at least six months. The employer can apply the ERC tax credit against their FICA (Federal Insurance Contributions Act) liability on their quarterly return.

The amount of the credit can be calculated as follows:

  • 25% of the first $25,000 in wages paid to a disabled employee during any calendar year (not including any state disability insurance contributions), plus
  • 40% of wages paid over $25,000 up to $50,000 (not including state disability insurance contributions).

How Can a Business Claim the ERC Tax Credit?

The IRS allows businesses to claim the credit retroactively for up to two years, but there are critical limits on how far you can go back. 

For example, if your company hired an employee in 2019 and applied for this credit in 2023, you can only get back three years of credits – the year of employment (2019), 2020, and 2021.

Several financial partners manage strategic and compliant tax credits and can handle all the related work on your behalf.

What is the Maximum Amount of This Tax Credit Available Per Employee?

Businesses with fewer than 100 employees are eligible for up to 20% of their wages paid up to $1,000 per worker each year. It is valid if they retain someone already employed for at least six months. The maximum amount that could be claimed is $2,400 per worker annually.

If you have more than 100 employees, the maximum amount of this credit is $1,000 per employee each year. The maximum amount that could be claimed is $200,000 per company.

Wrapping Up

Hopefully, you must have got a fair deal about the latest updates on ERC tax credits. It is a tax credit that can be claimed against the income tax liability of an individual or corporate taxpayer. This means that if you are eligible for ERC, you can reduce the tax payable on your income. 

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