As businesses grapple with the economic aftermath of the COVID-19 pandemic, the government has stepped in to help employers retain their valuable employees. The Employee Retention Credit is one such measure that offers financial relief to employers that are struggling to keep their staff employed. If you’re an employer in need of financial assistance to retain your employees, you may be wondering, who is eligible for the Employee Retention Credit? Here we will answer this question and explain all the criteria you need to meet to be eligible for the Employee Retention Credit.

Who is eligible for the Employee Retention Credit?

What is the Employee Retention Credit?

The Employee Retention Credit (ERC) is a tax credit available to employers who retain employees and pay wages during the COVID-19 pandemic. The credit is available for wages paid from March 12, 2020 to December 31, 2020. The ERC is equal to 50% of qualified wages (up to $10,000 of wages per employee) and can be claimed against certain employment taxes.

Who Qualifies for the Employee Retention Credit?

Employers are eligible for the ERC if their business has been affected by COVID-19, either directly or indirectly. Specifically, employers are eligible if they:

• are fully or partially suspended due to a governmental order limiting commerce, travel, or group meetings due to COVID-19; or
• have a significant decline in gross receipts during the calendar quarter.

Qualifying Wages

In order to qualify for the ERC, employers must pay wages to their employees. Qualifying wages are wages paid to an employee for services provided during the applicable period. Employers may claim the credit for wages paid after March 12, 2020 and before January 1, 2021.

Calculating the Credit

The ERC is equal to 50% of qualified wages (up to $10,000 of wages per employee). The maximum credit for an employer with fewer than 100 employees is $5,000 per employee. For employers with more than 100 employees, the credit is available for wages paid to employees who are not providing services due to a governmental order or a significant decline in gross receipts.

How to Claim the Employee Retention Credit

Employers can claim the ERC by filing Form 941, Employer’s Quarterly Federal Tax Return. The credit is claimed as a reduction of the employer’s federal employment taxes.

Employers with Fewer than 100 Employees

Employers with fewer than 100 full-time employees are eligible for the full credit for all qualified wages paid in a quarter. Qualified wages are wages paid to an employee for services provided during the applicable period.

Employers with More than 100 Employees

Employers with more than 100 full-time employees are eligible for the credit only for wages paid to employees who are not providing services due to a governmental order or a significant decline in gross receipts. The credit is equal to 50% of qualified wages (up to $10,000 of wages per employee).

Limitations of the Employee Retention Credit

The ERC is not available for wages paid to an employee who (1) is receiving wages from the employer for which the employer is claiming the credit, and (2) is receiving paid sick leave or paid family leave under the Families First Coronavirus Response Act (FFCRA).

Unemployment Benefits

The ERC is not available for wages paid to an employee who is receiving unemployment benefits. The credit is also not available for wages paid to an employee in excess of $10,000 for the calendar year.

Employee Retention Credit and the Paycheck Protection Program

The ERC is available to employers who receive a loan under the Paycheck Protection Program (PPP). However, wages paid with PPP loan proceeds are not eligible for the ERC.

Frequently Asked Questions

Question 1: What is the Employee Retention Credit?

Answer: The Employee Retention Credit is a tax credit for certain employers who are impacted by the COVID-19 pandemic. The credit is designed to incentivize employers to retain their employees, even if their business is taking a hit from the pandemic. The credit is a refundable tax credit against certain employment taxes, equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021.

Question 2: Who is eligible for the Employee Retention Credit?

Answer: Generally, employers are eligible for the Employee Retention Credit if they operate a trade or business during 2020 and either (1) experienced a full or partial suspension of operations due to a governmental order due to COVID-19; or (2) experienced a significant decline in gross receipts. Eligible employers include corporations, partnerships, sole proprietorships, nonprofits, tribal employers, and any person or organization paying wages subject to federal employment taxes.

Question 3: What are the requirements for an employer to qualify for the Employee Retention Credit?

Answer: In order to qualify for the Employee Retention Credit, employers must have experienced either a full or partial suspension of operations due to a governmental order related to COVID-19 or have experienced a significant decline in gross receipts. The credit is available to employers who had more than 100 employees in 2019. For employers with 100 or fewer full-time employees in 2019, all employees must be included in the calculation of the credit.

Question 4: What are qualified wages for purposes of the Employee Retention Credit?

Answer: Qualified wages are wages paid to an employee between March 12, 2020 and January 1, 2021. Qualified wages are capped at $10,000 per employee for each calendar quarter, and they do not include any wages taken into account for the purpose of calculating the employer’s share of payroll taxes. Qualified wages are also not wages paid to employees who are related to the employer.

Question 5: How much is the Employee Retention Credit?

Answer: The Employee Retention Credit is 50% of qualified wages of up to $10,000 per employee, per calendar quarter. The maximum credit is $5,000 per employee, per calendar quarter. The credit is refundable, meaning that employers can receive a refund for the amount of the credit even if they have no tax liability.

Question 6: How do employers claim the Employee Retention Credit?

Answer: Employers can claim the Employee Retention Credit on their quarterly employment tax returns, Form 941. The credit is claimed as a reduction in employers’ liability for Social Security taxes. Employers who overpaid their quarterly employment tax liability can receive a refund of the amount of the credit. Employers can also claim the credit when filing their annual federal income tax return.

Employee Retention Credit Eligibility Requirements – ERC 2021

The Employee Retention Credit is a great way to support employers who have been hit hard by the COVID-19 pandemic. Employers who have experienced a decline in gross receipts and have retained their employees may be eligible for the Employee Retention Credit. To be eligible, employers must have had a decline in gross receipts, have retained their employees, and meet certain other criteria. As the economy continues to recover from the pandemic, this credit can be a valuable tool for businesses seeking financial relief.