Unlocking Tax Benefits: Understanding the Employee Retention Credit (ERC)
by Brian Wallace
July 6, 2023
Unlocking Tax Benefits_Understanding the Employee Retention Credit

The Employee Retention Credit (ERC) is a refundable federal tax credit that encourages employers to retain their employees on payroll during the COVID-19 pandemic.

Unlike a loan, this credit does not require repayment. It is available for the tax years 2020 and 2021.

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Defining the Employee Retention Credit

For the 2020 tax year, the ERC provides a credit of 50% of up to $10,000 in wages per employee, resulting in a maximum credit of $5,000 per employee.

In 2021, the credit increases to 70% of up to $10,000 in wages per employee per quarter for three quarters, amounting to a potential credit ranging from $21,000 to $28,000 per employee.

The ERC is designed to assist businesses in recovering from the economic shutdown in 2020, making up for lost revenue caused by the pandemic, and enabling them to retain employees and sustain their operations.

Although the ERC program officially ended in 2021, businesses can still file to receive funds.

Businesses may qualify for the ERC if they experienced a significant decline in gross receipts during 2020 or a general decline in gross receipts during 2021 due to COVID-19.

How to Qualify for the ERC

To qualify, businesses must operate in the United States, regardless of size.

This includes nonprofits, colleges and universities, and various industries such as hospitality, retail, industrial, real estate, construction, and technology.

Additionally, businesses must have experienced a full or partial suspension of operations due to government authorities, supply chain disruptions, reduced services, limited workforce, or other factors that significantly impact business operations.

Conclusion

For businesses that meet the criteria, ERC requires qualifying wages, including cash payments and a portion of employer-provided health care costs.

Even companies that received Paycheck Protection Program (PPP) loans may still be eligible for the ERC.

The credit amount is based on the number of average full-time employees in 2019, with different calculations depending on whether the employer had more or less than 100 or 500 employees.

To claim the ERC, most businesses amend their tax filings, and the processing time by the IRS usually takes 4-10 months before checks are mailed.

Unlocking Tax Benefits: Understanding the Employee Retention Credit (ERC)

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