How Much is the Employee Retention Credit?

The employee retention credit is a refundable tax credit available to an employer for qualified wages paid from March 13, 2020 through December 31, 2020. This article will provide an overview of the employee retention credit and how much employers can expect to receive.

What is the Employee Retention Credit?

The employee retention credit is a refundable tax credit available to employers that have been impacted by COVID-19. It is designed to incentivize employers to keep employees on their payroll despite the economic hardship caused by the pandemic. The credit is available for qualified wages paid between March 13, 2020 and December 31, 2020 and can be claimed against the employer’s Social Security taxes.

Qualified wages are wages paid to an employee who has not provided services due to the impact of COVID-19. Employers can claim a maximum credit of $5,000 per employee in total during the period from March 13, 2020 through December 31, 2020. The amount of the credit varies depending on the number of employees and the amount of wages paid.

Who Is Eligible For The Employee Retention Credit?

Employers with fewer than 500 full-time employees who have been affected by the coronavirus pandemic are eligible for the employee retention credit. This includes businesses that have experienced a significant decline in gross receipts. Businesses must also meet certain criteria to qualify for the credit, including having either incurred a more than 50% reduction in quarterly receipts or had operations suspended by governmental order related to COVID-19.

In addition, employers must continue to pay salaries and wages even when operations are partially or completely suspended due to COVID-19. Qualified wages include wages paid to employees while they are furloughed or not providing services due to the coronavirus. The credit is limited to $10,000 in wages per employee for the entire calendar year.

Calculating the Employee Retention Credit

The employee retention credit is calculated as follows:

• For businesses with 100 or fewer full-time employees, the credit is equal to 50 percent of qualified wages up to $10,000 of wages per employee.
• For businesses with more than 100 full-time employees, the credit is equal to 50 percent of qualified wages up to $5,000 of wages per employee.

To calculate the total credit amount, employers must multiply the number of employees for whom qualified wages were paid by the applicable percentage (50%) and the applicable wage limitation ($5,000 or $10,000). The total credit is limited to $5,000 per employee for the entire year.

Claiming the Employee Retention Credit

The employee retention credit is claimed on Form 941, which is filed quarterly with the IRS. Employers should keep records of all qualified wages paid, including the employee’s name, Social Security number, and the amount of wages paid. In addition, employers must maintain documentation to demonstrate that the business was fully or partially suspended due to the coronavirus, or that it experienced a significant decline in gross receipts.

The employee retention credit is a valuable tool available to employers to help them retain their employees during the coronavirus pandemic. The credit is available for qualified wages paid between March 13, 2020 and December 31, 2020, and can be claimed against the employer’s Social Security taxes. The amount of the credit varies depending on the number of employees and the amount of wages paid, but is limited to $5,000 per employee for the year.