Employee Retention Credit

This credit is intended to aid employers who have been impacted by COVID-19 and it serves to offset the cost of wages paid to employees. In general, an organization is eligible to claim a credit for certain wages paid to employees if the employer has had a full or partial suspension of business operations due to governmental orders related to COVID-19 or if the employer has experienced a significant decline in gross receipts. The credit can be used to satisfy employment tax deposit obligations and is refundable, thereby providing a cash flow benefit to employers. The credit is up to $5,000 per employee for 2020, which is based on a maximum of $10,000 of qualified wages.

For 2020, the tax credit is equal to 50% of qualified wages that eligible employers pay their employees in a calendar quarter, and qualified employers can receive a maximum credit of $5,000 per employee. Employers may amend previous Form 941s to capture the credit.

For 2021, the tax credit is equal to 70% of qualified wages that eligible employers pay their employees, and qualified employers can earn a maximum credit of $7,000 per employee per quarter (or $28,000 per employee for the year).

For new business owners established after February 15, 2020:

The Employee Retention Tax Credit (ERTC) under the CARES Act is a fully refundable payroll tax credit. The recovery startup provision of the ERTC was enacted by the American Rescue Plan Act in March 2021. Under recovery startup, small businesses can now qualify for the ERTC even without a revenue decline or a government shutdown.

Companies qualify if they (1) have less than $1 million in average annual revenue, and (2) started a new trade or business after February 15, 2020. This can be an entirely new company OR a new offering within an existing business. For recovery startups, the ERTC is worth up to $7,000 per employee in Q3 and Q4 of 2021, capped at $100,000.