About the Employee Retention Credit
Nov 07, 2023
The Employee Retention Credit (ERC), also called the Employee Retention Tax Credit (ERTC), is a refundable tax credit for employers affected by the COVID-19 pandemic. The credit was designed to help eligible businesses and tax-exempt organizations that continued paying qualified wages to their employees or had a significant decrease in gross receipts during the eligibility period.
ERC Eligibility
An employer’s eligibility and credit vary depending on the business impacts and when they occurred. General guidelines include:
- Employers were closed as part of a pandemic-related government shutdown in 2020 or for the first three calendar quarters of 2021; or
- Employers met the threshold for significant decreases in gross receipts during the 2020 eligibility periods or the first three calendar quarters of 2021; or
- Employers qualified as a recovery startup business for the third or fourth quarters of 2021.
The ERC is available only for businesses and tax-exempt organizations, not individuals. For more information about ERC eligibility, visit the IRS website.
ERC Questions and Answers
The ERC is not a simple one-size-fits-all credit. Below are some additional key points about the ERC.
What are the deadlines to claim the ERC? For 2020, the deadline is April 15, 2024. For 2021, the deadline is April 15, 2025.
What wages are considered qualified? Qualified wages must be subject to Social Security and Medicare taxes. They may also include some healthcare expenses your company pays for employees.
What if my business had supply chain issues because of the pandemic? Does that qualify as a full or partial shutdown? Supply chain issues do not count toward eligibility for the ERC.
What is the threshold for the decrease in gross receipts to determine eligibility? The severity of the decrease is calculated as a percentage of receipts for the same quarter in 2019.
For 2020, if your gross receipts are less than 50% of the gross receipts for the same quarter in 2019, your business qualifies for the credit. However, when your gross receipts are more than 80% of the same quarter in 2019, you no longer qualify in the following quarter.
For 2021, your gross receipts must be less than 80% of the gross receipts for the same quarter in 2019.
What qualifies as a recovery startup business? A recovery startup business doesn’t have to relate to pandemic relief or recovery efforts. Rather, these businesses and organizations must have started operating after February 15, 2020, and meet specific annual gross receipt requirements.
It’s possible to be eligible for the credit in some quarters, but not all.
For more answers to frequently asked questions about the ERC, visit the IRS website.
ERC Scams
Recently, business have fallen prey to scammers aggressively promoting the ERC as a means of collecting sensitive data, while omitting key details of the credit. To help curb this fraudulent activity, the IRS has temporarily halted processing claims until 2024.
Employers can mitigate risk by:
- Working with trusted tax professionals to determine eligibility and file claims;
- Understanding eligibility requirements directly from known, trusted sources such as the IRS rather than from unknown third parties; and
- Applying only if they believe their business qualifies. The ERC is not a guaranteed credit, and not every business will meet the criteria to qualify.
If you would like personalized guidance on how the ERC may impact your business or need help filing a claim, please contact us.
Photo courtesy of Photographs in the Carol M. Highsmith Archive, Library of Congress, Prints and Photographs Division.
