The Internal Revenue Service (IRS) has created the Employee Retention Credit (ERC) to help businesses affected by the COVID-19 pandemic. The ERC is a refundable tax credit that employers can claim for wages paid to employees between March 12, 2020 and December 31, 2021. The credit is available to employers of all sizes, including those with fewer than 500 employees.
The ERC is designed to help employers retain their employees and cover certain costs associated with providing health care benefits. The credit is equal to 50% of qualified wages paid to each employee, up to a maximum of $5,000 per employee. Qualified wages include wages paid after March 12, 2020 and before January 1, 2022.
To be eligible for the ERC, employers must meet certain criteria. First, employers must have experienced a full or partial suspension of their business operations due to a governmental order related to COVID-19. Second, employers must have experienced a significant decline in gross receipts. A significant decline in gross receipts is defined as a decline of more than 20% in any calendar quarter compared to the same quarter in 2019.
In addition, employers must meet certain requirements related to the number of employees they employ. For employers with more than 100 full-time employees in 2019, qualified wages are limited to wages paid to employees who are not providing services due to the suspension of operations or the significant decline in gross receipts. For employers with 100 or fewer full-time employees in 2019, all wages paid to employees are eligible for the credit, regardless of whether they are providing services due to the suspension of operations or the significant decline in gross receipts.
The ERC is available for wages paid between March 12, 2020 and December 31, 2021. Employers can claim the credit for wages paid during this period, even if they have not yet experienced a full or partial suspension of their business operations or a significant decline in gross receipts.
The ERC is a valuable tool for businesses affected by the COVID-19 pandemic. It can help employers retain their employees and cover certain costs associated with providing health care benefits. Employers should carefully review the eligibility requirements and calculate their potential credit amount before claiming the ERC.
