The Employee Retention Credit (ERC) was a temporary U.S. federal tax credit designed to encourage businesses to retain employees during the COVID-19 pandemic. It’s no longer available as of January 1, 2022. However, understanding its details can still be helpful for various reasons, such as:
- Claiming any remaining credit: Businesses may still be eligible for some Employee Retention Credit if they haven’t claimed it for all qualifying periods.
- Preparing for future programs: The ERC may serve as a model for future government support during economic downturns.
- Understanding tax liability: If you claimed the ERC, knowing its rules is crucial for accurate tax filings.
Here’s a summary of the key points about the ERC:
What was it?
- A refundable tax credit for eligible employers who paid qualified wages to employees during the pandemic.
- Offered 50% of qualified wages paid up to $10,000 per employee per quarter.
- Applicable to wages paid between March 13,2020, and December 31, 2021.
Who was eligible?
- Businesses and tax-exempt organizations that met at least one of the following criteria:
- Fully or partially suspended due to a government order relating to COVID-19.
- Experienced a significant decline in gross receipts:
- 50% decline in 2020 compared to the same quarter in 2019.
- 20% decline in the first three quarters of 2021 compared to the same quarters in 2019.
- Businesses with less than 100 employees in 2019 could claim the credit for all employee wages, regardless of work status.
- Larger businesses could only claim the credit for wages paid to employees who did not work during the eligible quarter.
How was it calculated?
- 50% of qualified wages paid up to $10,000 per employee per quarter.
- Qualifying wages included:
- Wages actually paid
- Employer-paid health insurance costs
- Paid time off
How to claim it (if applicable):
- No more applications are currently being accepted.
- If you haven’t claimed all eligible credit, you can do so by filing amended tax returns for the relevant quarters.
Resources:
- IRS Employee Retention Credit page:https://www.irs.gov/coronavirus/employee-retention-credit
- IRS Employee Retention Credit Eligibility Checklist:https://www.irs.gov/newsroom/employee-retention-credit-eligibility-checklist-help-understanding-this-complex-credit
- IRS Frequently Asked Questions about the Employee Retention Credit:https://www.irs.gov/coronavirus/frequently-asked-questions-about-the-employee-retention-credit
Remember, even though the ERC is no longer available, understanding its details can still be valuable for various situations. Feel free to ask if you have any specific questions about the program or its implications.
