Frequently Asked Questions about the Employee Retention Credit

What is the Employee Retention Credit?

The Employee Retention Credit (ERC) is a refundable tax credit provided to eligible employers who retained their employees during periods of economic uncertainty caused by the COVID-19 pandemic. It was introduced as part of the CARES Act in March 2020 and extended by the Consolidated Appropriations Act in December 2020.

Who is eligible for the ERC?

Employers who experienced a significant decline in gross receipts or were subject to a full or partial suspension of operations due to government orders are eligible for the ERC. Initially, the credit was available only to businesses with 100 or fewer employees, but the eligibility was expanded to businesses with up to 500 employees under the Consolidated Appropriations Act.

How much is the credit worth?

The ERC is worth up to 70% of qualified wages, including certain health benefits, paid to eligible employees during eligible quarters. The maximum credit amount is $5,000 per employee for the entire year 2020 and $7,000 per employee per quarter in 2021.

Can an employer claim the ERC for the same employee and period for which they received a Paycheck Protection Program (PPP) loan?

Initially, employers who received a PPP loan were not eligible for the ERC. However, the Consolidated Appropriations Act amended the rules, allowing businesses to claim the ERC for wages that were not forgiven under the PPP loan.

Do employers need to repay the ERC?

No, the ERC is a refundable tax credit, which means eligible employers can receive the credit even if they have no tax liability. Any excess credit can be claimed as a refund or applied against other tax obligations.

How does an employer claim the ERC?

Employers can claim the ERC on their quarterly employment tax returns, typically Form 941. They should report the total qualified wages and the corresponding credit for each quarter they are eligible. If the credit exceeds the employment taxes owed, employers can request an advance payment or receive a refund.

Is the ERC available for self-employed individuals or nonprofit organizations?

No, the ERC is only available for eligible employers who operate a trade or business. Self-employed individuals, governmental entities, and nonprofit organizations that provide certain governmental programs are not eligible for the credit.

Can an employer claim the ERC for retroactive periods?

Yes, employers who were eligible for the ERC in previous quarters but did not claim it can file amended employment tax returns to claim the credit retroactively. The deadline for filing amended returns is generally three years from the original filing date or two years from the date the tax was paid, whichever is later.

Is there an expiration date for the ERC?

As of now, the ERC is available for wages paid between March 13, 2020, and December 31, 2021. However, legislation is subject to change, and it's important to stay updated with the latest information from the IRS.

Where can employers find additional information about the ERC?

Employers can find more information about the Employee Retention Credit on the official website of the Internal Revenue Service (IRS). The IRS provides detailed guidance, frequently asked questions, and forms necessary for claiming the credit. Remember to consult with a tax professional or refer to the official IRS guidelines to ensure your eligibility and accurate claiming of the Employee Retention Credit.

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