What is the Employee Retention Credit?
The Employee Retention Credit (“ERC”) is a refundable tax credit created as part of the CARES Act to encourage employers to keep their employees on payroll. The ERC is available to qualifying employers for wages paid during the periods March 13, 2020 – September 2021; it can be obtained whether or not an employer was deemed “essential” or previously received one or more PPP loans from the SBA. The total amount of the ERC is up to $26,000 total per employee, equivalent to 50% of qualified wages up to $10,000 paid to each employee in calendar year 2020 and 70% of qualified wages up to $10,000 paid to each employee in the first three quarters of 2021. When filed retroactively, approved ERC refund claims result in direct payments to employers, which can be very helpful for organizational cash-flow purposes.
The ERC is available to both for-profit and tax-exempt employers that experienced either:
1) fully or partially suspended operations due to federal, state or local governmental orders or proclamations limiting commerce, travel, or group meetings due to COVID-19; or
2) a significant decline in gross receipts during the calendar quarter.
The qualification rules for 2020 are different than 2021, so a careful analysis should be completed to determine whether an employer qualifies and if so, to accurately determine the ERC to maximize the employer’s refund claim.