Comparing the ERTC with Other Employment Incentives

October 16, 2023
Dayes Law Firm

The Employee Retention Tax Credit could help your business recover from COVID-19-related shutdowns and lost revenue, but this credit isn’t the only employment incentive available to you. Understanding all the pandemic-related incentives your business may qualify for can help maximize your funding. 

Here’s what you need to know about ERTC benefits vs. other credits. 

Employment Tax Credits and Incentives

The government has offered several employment incentives over the past few years to help businesses through pandemic-related challenges and encourage them to keep their workforces strong. Below are the four main tax credits and incentives that encourage employment. 

Employee Retention Tax Credit 

The Employee Retention Tax Credit (ERTC) is a refundable payroll tax credit for businesses that experienced a significant decline in gross receipts in 2020 or 2021. It provides a credit of up to $26,000 per employee for qualified wages paid during the pandemic. 

The deadline to file the ERTC is April 15, 2024, for the 2020 tax year and April 15, 2025, for the 2021 tax year. You can file Form 941-X, the Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, to amend your tax returns for these years. 

Paycheck Protection Program (PPP) Loan 

Paycheck Protection Program (PPP) loans were available to small businesses until May 31, 2021. The purpose of these loans was to help businesses maintain their workforce during COVID-19.

While the applications for PPP loans have closed, if you previously borrowed through this program, you may be eligible for PPP loan forgiveness. 

Work Opportunity Tax Credit (WOTC)

The Work Opportunity Tax Credit (WOTC) incentivizes business owners to hire individuals from certain targeted groups who experience barriers to employment. The credit is equal to 40% of up to $6,000 of wages paid to certain employees who fall into these categories:

  • IV-A recipients
  • Veterans
  • Summer youth employees
  • Ex-felons
  • Designated community residents 
  • Long-term family assistance recipients
  • SNAP benefits recipients
  • SSI recipients
  • Long-term unemployment recipients

Employer Credit for Paid Family and Medical Leave 

The IRS also offers a credit for employers who give employees paid family and medical leave. This credit is available for the tax years of 2018 through 2025 and can provide up to 25% back for qualified wages paid to employees while on family and medical leave. 

Comparing the ERTC Benefits vs. Other Credits 

So, which of these tax credits should you apply for? While the application period for PPP loans has passed, you may still be able to seek PPP forgiveness. The other three credits are still available to businesses until 2025. 

While every business is different, many find that the ERTC is the most generous tax credit available to them. The ERTC is also a refundable credit, which means you’ll gain the full amount the IRS owes you regardless of whether it surpasses the wages paid to employees. Meanwhile, the WOTC isn’t a refundable credit. 

You may be able to claim the ERTC and the WOTC, but you can’t claim both for the same wages. Your tax attorney may advise you to begin by claiming the Employee Retention Tax Credit, then claim the WOTC for any leftover wages not applicable to the ERTC. 

If you pay wages to employees on family and medical leave, you may be able to claim that credit in addition to the ERTC. Be careful not to double-dip; work with a qualified tax attorney to maximize your credits while adhering to IRS guidelines. 

Additionally, in September, the IRS announced “an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program” as a result of increased fraud concerns. 

IRS Commissioner Danny Werfel noted in the announcement, “The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in,” and urged that when it comes to claiming the credit, “businesses should seek out a trusted tax professional who actually understands the complex ERC rules.”

Dayes Law Firm: Your ERTC Tax Attorneys

The tax attorneys at Dayes Law Firm can help you understand ERTC benefits vs. other credits and advise you about which credits to claim. Call us today at 866-567-4510 for your free consultation with our tax attorneys