Key things to know about employee retention credit

During the pandemic, the government issued multiple orders that directed certain businesses to shut down or required employees to work from home. Even partial curfews and restricted travel or movement directives directly affected the functioning of a business. That is why the government also introduced the Employee Retention Credit or ERC to eligible businesses impacted by the scale of these orders. The tax credit provides businesses much-needed leverage to survive and recover operations post-pandemic.

Who can avail of the credit?
Changes in regulations and policies could significantly impact travel, business operations, meetings, and other activities that a company relies on to remain profitable. Employers can apply for employee retention credit regardless of the organization’s size or tax exemption status. This credit incentivizes employers to keep their employees on payroll and receive a tax refund in return for retaining their workforce.

  • The credit amount is 50% of $10,000 in the wages paid to the employee for eligible quarters in 2020. This works out to $5,000 per employee per quarter.
  • For 2021, the credit amount is 70% of the $10,000 in wages paid to the employee for eligible quarters in 2020. This works out to $7,000 per employee per quarter.

Businesses can claim tax credits per quarter to offset slow business or losses incurred due to government orders. The amount of credit depends on the total number of employees in the organization. The term “wages” refers to cash payments and a portion of the salary fixed by the employer for a specific task.

Revised employee retention credit eligibility for 2023
While employers can still file for ERC on wages paid during 2020 and 2021, the following group of people will not be considered eligible for the filing:

  • Individual taxpayers, employees, or retirees
  • Self-employed individuals without employees on payroll or household employers
  • Employers who didn’t pay wages during the qualifying years or specific government agencies

Apart from these institutions, any other employer can file an ERC within the following timeline –

  • The deadline to file for credits on wages paid during any eligible quarter in 2020 is April 15, 2024.
  • The deadline for filing credits for wages paid during any eligible quarter in 2021 is April 15, 2025.