Employee Retention Credit
What Is Employee Retention Credit (ERC)?
The ERC is a special program created by the federal government in response to the pandemic and the economic hardship that ensued. It was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was passed in March 2020. It provides incentives to employers in the form of a payroll tax credit for their employees who they retain during the pandemic.
Recognizing the difficulty that many business owners faced in trying to keep their doors open, not to mention maintaining profitable returns, and the impact this had on workers, the program was designed to provide businesses with some tax relief and support for the salaries they continued to pay.
The ERC is a refundable tax credit that businesses can claim on qualified wages paid to their employees. It can be claimed by any employer operating a trade, business, or a tax-exempt organization. Government agencies are not eligible.
Employers must meet a few criteria to be eligible for the credit. They must experience either a full or partial suspension of operations as a result of a government order due to COVID-19 during any quarter, or a decline in revenue to a level that is less than 50 percent in their gross receipts.
Recent Amendments
The law has been amended three times since its adoption and implementation. Those changes have incrementally expanded and extended the program. The most recent changes were adopted in the Infrastructure Investment and Jobs Act (IIJA) which was approved in November 2021. These put some limitations on eligibility.
In the first iteration, the ERC applied to qualified wages earned between March 13 and December 31 of 2020. The first amendments were included in the Taxpayer Certainty and Disaster Relief Act of 2020 (Relief Act). They extended the eligibility period to the first six months of 2021.
The second set of amendments were contained in the American Rescue Plan (ARPA) Act of 2021 and extended the eligibility program another six months, through December 31, 2021.
The most recent amendments contained in the IIJA limited availability in the fourth quarter of 2021 (October 1 through December 31) to recovery startup business only. These are new businesses that started during the pandemic, specifically those which started after February 1, 2020.
The various amendments have made other significant changes, too. For example, eligibility was expanded to include some government agencies, colleges and universities. Also, the threshold for revenue loss was raised from 50 percent to 80 percent, making it easier for some businesses to qualify.
The percentage of qualified wages eligible for the credit was also increased from 50 percent to 70 percent, then 100 percent for certain "severely financially distressed employers".
Finally, the credit maximum was increased from $5000 per employee in 2020 to $7000 per employee per quarter in 2021.
Eligible businesses stand to benefit from tens and even hundreds of thousands of dollars in tax incentives from the ERC. Many have taken advantage. The IRS reports it has processed employers’ claims for this credit totaling $10.5 billion in the second, third, and fourth quarters of 2020 and $7.9 billion in the first quarter of 2021.
Most importantly, it is not too late for a business to apply for the ERC, even though the program only applies to taxes for the 2020 and 2021 calendar years. Eligible employers may still claim the ERC for prior quarters by filing an applicable adjusted employment tax return within the deadlines. To receive the ERC for wages paid in 2020 and 2021, they have until 2024 and 2025, respectively, to file their amended returns.
How Incentify Helps Businesses File for the ERC?
As the nation's leading enterprise tax credits & incentives (C&I) platform, Incentify is uniquely capable of helping business owners determine their ERC eligibility and apply for the credit. The software company’s innovative cloud solution helps businesses of all sizes across diverse industries save valuable time and resources, and maximize their cash flow, by identifying and maximizing their eligibility for these and other valuable tax credit programs.
Incentify brings together companies, specialty advisors, and technology to help customers collaborate and engage in the discovery of credits and incentives. We combine technology with a team of C&I professionals to collect assessment documentation and connect you with top industry advisors who are best suited to discover and secure credit and incentive opportunities.
Through Incentify Discovery we will collect business information and unique economic data, and run the data through our C&I opportunity discovery engine to uncover every potential opportunity. We will determine potential C&I opportunities, like the ERC, and match your business with best-fit advisors to assist and advise with the next phases of the process.
Contact Incentify today to find out more about how you can benefit from the federal ERC, and other valuable C&I programs.
FREQUENTLY ASKED QUESTIONS
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The Employee Retention Credit is a tax credit provided to businesses and organizations to help keep employees on their payroll during the COVID-19 pandemic.
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Businesses and organizations that were either fully or partially suspended due to a government order related to COVID-19 or experienced a significant decline in gross receipts are eligible for the Employee Retention Credit.
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The Employee Retention Credit is worth up to 70% of qualified wages paid to each employee, up to $10,000 per employee per quarter in 2021. This means the maximum credit per employee is $7,000 per quarter in 2021.
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Businesses can claim the Employee Retention Credit on their employment tax returns. They can either reduce their federal employment tax deposits or request an advance payment from the IRS if the credit exceeds their employment tax liability.
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Yes, businesses that received a PPP loan can still claim the Employee Retention Credit, but not for the same wages used to obtain forgiveness for the PPP loan.
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The Employee Retention Credit is a tax credit provided to businesses that kept employees on their payroll during the pandemic, while the PPP is a forgivable loan provided to businesses to cover payroll costs and other expenses.
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The deadline for claiming the Employee Retention Credit for 2020 was extended to May 17, 2021, but the deadline for claiming the credit for 2021 has not yet been announced.
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No, businesses can only claim the Employee Retention Credit for wages paid to employees who are still on their payroll.
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Yes, there are several limitations on claiming the Employee Retention Credit, such as limitations on claiming the credit for wages paid to certain relatives of the business owner and limitations on claiming the credit for wages paid with certain types of government assistance.
