The Employee Retention Credit (ERC) is a federal tax credit designed to incentivize employers to retain their employees during the COVID-19 pandemic. It is a refundable credit, meaning that it can result in a refund even if the credit exceeds the amount of tax owed. The ERC was available for tax years 2020 and 2021.
For the 2020 tax year, employers could claim 50% of up to $10,000 in wages paid per employee, totaling a maximum credit of $5,000 per employee. In 2021, the credit increased to 70% of up to $10,000 in wages per employee per quarter. This resulted in a potential credit of $7000 per employee for the year.
To be eligible for ERC, businesses must meet certain criteria. They must have experienced a significant decline in gross receipts in 2020 or 2021 compared to a corresponding quarter in 2019. Additionally, businesses that faced government-imposed suspensions, supply chain disruptions, reduced operations, or workforce limitations due to COVID-19 may qualify.
The ERC program officially ended in 2021, but businesses can still file to receive funds. Claiming the ERC involves considering qualifying wages, including cash payments and a portion of employer-provided healthcare costs. Businesses that received Paycheck Protection Program (PPP) loans may also be eligible for ERC.