When Did Employee Retention Credit Start?
Employee retention credit (ERC) is a tax benefit for employers that retain their employees and pay them wages during the COVID-19 pandemic. The ERC program was created in response to large-scale layoffs and furloughs caused by the pandemic, allowing certain employers to claim a refundable credit against payroll taxes equal to 50% of the wages they paid to employees.
What Is The Employee Retention Credit?
The employee retention credit is a tax incentive designed to help businesses keep their employees on payroll in the wake of the COVID-19 pandemic. The ERC is a refundable tax credit that eligible employers can use to offset a portion of the payroll taxes they owe. Specifically, employers may be able to claim a credit up to 50% of the qualified wages they pay to employees each quarter.
To qualify for this credit, employers must meet certain eligibility criteria, such as having operations partially or fully suspended due to government orders related to the coronavirus or experiencing significant declines in gross receipts over specified time periods. The period to claim the ERC begins with the first quarter of 2020 and ends with the last quarter of 2020.
Who Is Eligible For The Employee Retention Credit?
In order to be eligible for the employee retention credit, employers must meet one of two criteria. The first criterion is that their operations have been partially or completely suspended due to governmental orders related to the coronavirus. The second criterion is that their gross receipts for any calendar quarter were less than 50% of their gross receipts for the same quarter in 2019.
In addition to these criteria, only employers who pay qualifying wages are eligible for the credit. Qualifying wages are wages paid to an employee for services performed while either their operations were suspended due to governmental orders or their gross receipts were less than 50% of their prior year's receipts. The amount of qualifying wages taken into account for each employee cannot exceed $10,000.
How Does The Employee Retention Credit Work?
The employee retention credit allows employers to take a nonrefundable credit of up to 50% of the qualifying wages they pay to an employee. The maximum amount of qualifying wages taken into account for each employee is $10,000 per quarter. The total amount of the credit allowed for all employees in a given quarter cannot exceed $5,000 per employee.
The credit is available to employers beginning with the first quarter of 2020 and ending with the last quarter of 2020. Employers may claim the credit on their quarterly payroll tax returns or file a request for advance payment from the IRS. Employers may also adjust their estimated tax payments to take advantage of the credit.
The employee retention credit is a valuable tax incentive for employers struggling to survive during the pandemic. By giving employers the ability to claim a credit against payroll taxes equal to 50% of the wages they pay to employees, the ERC helps employers keep their workers on payroll while continuing to provide essential services. As long as they meet the eligibility criteria, employers can take advantage of this credit beginning with the first quarter of 2020 and ending with the last quarter of 2020.