Employee retention credits (ERC) are a form of tax credit that employers can claim to offset the cost of keeping their employees on the payroll during difficult times. The ERC was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, and has since been extended and expanded by subsequent legislation.
The aim of the ERC is to incentivize employers to keep their employees on the payroll during periods of economic uncertainty, such as the COVID-19 pandemic. By offering a tax credit, the government hopes to alleviate the financial burden on businesses and prevent widespread layoffs and furloughs.
Eligibility for the ERC depends on a number of factors, including the size of the business, the impact of COVID-19 on its operations, and the number of employees retained. In general, businesses with fewer than 500 employees that experienced a significant decline in revenue in 2020 or 2021 compared to the same period in the previous year are eligible for the credit.
The ERC is worth up to $7,000 per employee per quarter (Q1-Q3) in 2021 and up to $5,000 for 2020. This means that eligible employers could potentially receive up to $26,000 in tax credits per employee. The credit is calculated based on the amount of qualified wages paid to employees during the applicable period.
Qualified wages are wages paid to an employee during a period in which the employer is experiencing a decline in revenue or is subject to a government shutdown order. The amount of qualified wages that can be claimed for the ERC depends on the size of the business and the number of employees retained.
There are a number of benefits to claiming the ERC. Firstly, it can help to reduce the financial burden on businesses that have been impacted by COVID-19. Secondly, it can help to improve employee morale and retention by providing additional support to businesses that are committed to keeping their employees on the payroll. Finally, it can help to stimulate the economy by encouraging businesses to invest in their workforce and maintain their operations.
Overall, the employee retention credit is an important tool for businesses that are struggling to keep their employees on the payroll during the COVID-19 pandemic. By providing financial support to businesses that are committed to retaining their employees, the ERC can help to prevent widespread layoffs and furloughs, and support economic recovery in the years to come. If you’re an employer who is struggling to keep your employees on the payroll, it’s worth exploring whether you are eligible for the ERC and how it could benefit your business.