A Quick Guide to the Employee Retention Tax Credit

You may be wondering, “what is the ERC?” The employee retention tax credit (ERC) is a refundable credit for employers to take and receive at least $5,000 per employee. This credit was passed during the COVID-19 CARES Act to help keep employees on the payroll by offering incentives for employers.

Since the initial legislation passed, there have been a few revisions to what employers can get with this credit. The 2021 update increased the credit significantly.

Keep reading to learn more about the employee retention tax credit. And discover how you can apply for it your business.

What is the Employee Retention Tax Credit?

The employee retention tax credit is for wages paid between March 2020 and December 2020. It is a refundable credit for each full-time employee paid during this time period. The amount for 2020 is $5,000 per employee.

To qualify for this credit, your business had to be partially or fully shut down in 2020. Your business also qualifies if you stayed open but your gross receipts fell below 50% of what they were in the same quarter in 2019.

Employers can reduce payroll taxes by claiming the credit immediately. This is a refundable credit, so anything over the amount of payroll taxes paid will be directly deposited into your business banking account.

What Are Qualified Wages?

Qualified wages are those paid during the specific timeframes to full-time employees. Employers can also include qualified health care plan expenses. In 2020, if the business had fewer than 100 full-time employees, the credit would apply to everyone.

Not sure how to calculate the employee retention credit? Check out this article for more information.

What Was the 2021 Update?

There were a few pieces of legislation that changed the employee retention tax credit in 2021. Those include:

  • The Relief Act
  • American Rescue Plan Act
  • Infrastructure Investment and Jobs Act

The employee retention credit was extended to include wages paid from January 2021 to December 2021. The fourth quarter of 2021 is limited to recovery startup businesses. The credit was also increased to $7,000 for the first $10,000 in wages paid to a full-time employee.

The 2021 changes also increased the number of full-time employees from 100 to 500. For employers with 500 or fewer employees, the credit applied to working or shutdown months.

For employers with 500 or more employees, the credit is only applicable for shutdown periods.

Not sure if you qualify for the employee retention credit? Fill out an ERC application today to get help from ERC professionals.

Who Can Get Retroactive Payments?

The retroactive payments ended for most businesses in 2021. The only eligible companies that can submit for retroactive payments at this time are startup recovery businesses.

A startup recovery business is one that started after February 15, 2020. The company has to have under $1 million in gross receipts annually to qualify.

Read More Business Articles

Now that we’ve explained the employee retention tax credit and discussed how to apply, you may be ready to learn about more topics. Perhaps you have questions about budgeting or marketing.

Check out our blog for a variety of articles to help you run and improve your business.

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