Get quick answers to frequently asked questions about the employee retention tax credit and how to claim a up to $26,000 per employee. Even tax-exempt businesses and those who receive a Paycheck Protection Program loan can qualify for this tax refund. To file a claim, eligible employers must have paid qualified wages paid during the COVID-19 pandemic.
If you take our simple 5-minute ERC Quiz you will instantly know if you are eligible for a 2020 or 2021 payroll retention tax credit refund, or as a recovery startup business. The IRS estimates that 70-80% of all US businesses will qualify for a refund after new legislation was added to include:
- Non-profit organizations and companies that received PPP loan forgiveness
- Businesses that turned a profit during the pandemic qualifying alongside those who had a 20% decline in annual gross receipts..
It’s a fully refundable tax credit that allows businesses that paid qualifying wages to full-time employees during 2020 and 2021. When filing form 941 to claim the ERC, eligible employers can claim a refund of all federal employment taxes paid up to $26,000 per employee. Qualifying wages include the employer’s share of social security tax, Medicare taxes, and all federal income tax paid.
When claiming the Employee Retention Credit, eligible employers are considered those who ;carried on a trade or business during the calendar year of 2020 or 2021. ;ERC eligibility also requires businesses to meet one of the two following criteria:
- Experienced full or partial suspension of business operations or had supply chain disruptions due to government shutdowns.
- Experienced a significant decline in gross receipts in any calendar quarter compared to 2019.
When determining eligible employer status for the ERC, even a tax-exempt organization or a company that received a PPP loan can qualify, while newly established businesses can get their federal income tax refund by applying as a Recovery Startup Business.
Yes. ERC stands for Employee Retention Credit, but it’s also known as the Employee Retention Tax Credit (ERTC). These fully refundable Employee Retention Credits were introduced in the Coronavirus Aid and Relief Act of 2020 and with the IRS allowing claims up until December 31, 2024.
When the ERC was introduced in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act of 2020), it allowed for a maximum amount of $5,000 per full-time worker, if eligible employers pay their employees during government-mandated shutdowns.
Companies with 100 or fewer average full-time employees could claim the full amount for all employees while those with more than 100 employers could only claim wages paid to employees not providing services. Since then it’s been revised three more times to the point where the IRS created a 2020 vs 2021 ERC comparison chart.
The ERC was first revised in the Taxpayer Certainty and Disaster Tax Relief Act of 2021 (TCDTRA) which increased the maximum allowable amount in 2021 to $7,000 per employee, per calendar quarter. Amendments were also made to allow tax-exempt organizations and businesses that received PPP loans to claim the credit. The definition of a large company was also changed from 100 or more employees (2020 claims) to 500 or more (2021 claims).
In the American Rescue Plan Act of 2021, a Recovery Startup Business that had gross annual revenues of less than $1m in the last 3 years is now allowed to claim up to $50,000 per quarter in Q3 and Q4 of 2021. The employer tax offset was also changed from the employer’s portion of Social Security tax (2020 claims) to the employer’s portion of Medicare taxes (2021 claims).
Finally, during the Infrastructure Investment and Jobs Act of 2021 (IIJA), ERC eligibility was restricted in Q4 of 2021 to Recovery Startup Businesses only. Eligibility for severely financially distressed employers was also removed for ERC claims in the fourth calendar quarter of 2021.
You can use our free ERC Calculator to get a rough estimate of how big your refund check could be, if you could qualify each eligible employee for the ERC’s maximum credit rebate.