What Is the Employee Retention Credit (ERC)?
The Employee Retention Credit is a program intended to help employers who continued to pay their employees during the COVID-19 pandemic. Through the program, eligible employers receive a refundable payroll tax credit. Because the ERC credit is refundable, some organizations may be able to get refunds for more than what they paid for payroll taxes during 2020 and 2021. Not loans, Employee Retention Credits don’t need to be repaid, and they don’t appear as debt on businesses’ balance sheets.
The ERC went into effect with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)(7) and initially allowed employers to claim a payroll tax credit equal to 50% of qualified wages paid per employee from March 13 to December 31, 2020. The legislation capped the maximum ERC eligible wages per employee at $10,000 per year.
With the passage of the Consolidated Appropriations Act of 2021 (CAA), the ERC credit program expanded to 70% of qualified wages per employee.(8) In addition, the legislation made the ERC credits available per quarter rather than per year. As a result, qualified employers became eligible to receive up to $7,000 per employee per applicable quarter.
The American Rescue Plan Act of 2021 extended the deadline for ERC credits through September 2021, allowing eligible businesses to get a maximum tax credit of $21,000 per employee.(9) Recovery startup businesses, however, are eligible through December 2021.