What You Need to Know
COVID-19 Employee Retention Tax Credit
In 2021, new amendments to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) now offer substantially more aid to employers.
Since it was enacted on March 27, 2020, the CARES Act provided an employee retention credit to employers that kept employees on their payroll amid an economic hardship due to the novel COVID-19.
ERTC Overview
The employee retention tax credit is a broad based refundable tax credit designed to encourage employers to keep employees on their payroll.
Qualified payments limited to $10,000 per employee per quarter through October 1, 2021. ERTC is not available in the same quarter you are taking WOTC for an employee.
Wages must not be more than the amount the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period.
Qualified ERTC wages cannot be wages paid through PPP funds. Complete exclusion from ERTC due to receipt of PPP loan has been eliminated. Limitations with WOTC, Employer Credit for Paid Family and Medical Leave, Credit for Required Paid Sick Leave & Credit for Required Paid Family Leave apply.
How much is the credit?
70%
of qualified wages per employee (max $7,000 per quarter)
Who qualifies?
All employers regardless of size
that meet one of two qualifications:
1. Business was fully or partially suspended by government order due to COVID-19 during the calendar quarter
OR
2. The employer's gross receipts are down 20% or more in comparison to the same quarter in 2019
What wages qualify?
up to $10,000 per quarter
in wages and healthcare costs paid between January 1, 2021 and October 1, 2021 to employees who did not work during that period. (If 500 employees or fewer, the credit is based on wages paid to all employees regardless of whether they actually worked or not.)
How will I be paid?
Offset of all withheld federal employment taxes:
Employer FICA and Medicare
Employee FICA and Medicare
Federal Income Tax Withholding
Excess credit will be refunded:
Cash refunds
Advance tax payments
Frequently Asked Questions
Any employer, regardless of size, is eligible for the credit during calendar year 2021 if the business: (1) is fully or partially suspended due to a governmental order related to COVID-19, or (2) experiences a significant decline in gross receipts (i.e., down 20% or more in comparison to the same quarter in 2019).
The credit also applies to tax-exempt organizations if the operation of the organization is fully or partially suspended due to the circumstances described in (1) above. The credit generally does not apply to governmental employers, including the U.S. Government, state and local governments, or any agency of the foregoing.
Yes. The credit only applies to qualified wages paid by a business whose operations have been fully or partially suspended pursuant to a governmental order related to COVID-19, or have experienced a significant decline (i.e., down 20% or more in comparison to the same quarter in 2019) in gross receipts, as described above, during the period from January 1, 2021 through October 1, 2021.
No. For eligible employers with 500 or fewer full-time employees, the credit applies to all employee wages. In contrast, eligible employers with greater than 500 full-time employees may only take into account qualified wages paid to employees when they are not providing services due to a governmental order related to COVID-19.
No. The tax credit may be claimed against the employer portion of employment taxes, including Social Security and Railroad Retirement payroll taxes. To the extent the credit exceeds the employer portion of employment taxes due, the credit is treated as an overpayment and is refundable to the employer. The IRS is expected to provide guidance regarding the process for claiming the credit and receiving the refund.
*Under the Consolidated Appropriations Act, 2021, employers that received or receives a PPP loan are no longer prohibited from claiming the ERTC. You can claim the ERTC related to qualified wages on your 4th quarter 2020 Form 941.
If the business claims the FFCRA credit for mandatory sick leave and/or family leave, the wages associated with the FFCRA credit are not eligible as qualified wages for the employee retention credit. This prevents both credits from applying to the same wages paid by an employer.
No. As long as the employer meets the requirements for the credit (described in the Q&As above), the employer does not have to repay the credit or the resulting refunds.
Frequently Asked Questions
Any employer, regardless of size, is eligible for the credit during calendar year 2021 if the business: (1) is fully or partially suspended due to a governmental order related to COVID-19, or (2) experiences a significant decline in gross receipts (i.e., down 20% or more in comparison to the same quarter in 2019).
The credit also applies to tax-exempt organizations if the operation of the organization is fully or partially suspended due to the circumstances described in (1) above. The credit generally does not apply to governmental employers, including the U.S. Government, state and local governments, or any agency of the foregoing.
Yes. The credit only applies to qualified wages paid by a business whose operations have been fully or partially suspended pursuant to a governmental order related to COVID-19, or have experienced a significant decline (i.e., down 20% or more in comparison to the same quarter in 2019) in gross receipts, as described above, during the period from January 1, 2021 through October 1, 2021.
No. For eligible employers with 500 or fewer full-time employees, the credit applies to all employee wages. In contrast, eligible employers with greater than 500 full-time employees may only take into account qualified wages paid to employees when they are not providing services due to a governmental order related to COVID-19.
No. The tax credit may be claimed against the employer portion of employment taxes, including Social Security and Railroad Retirement payroll taxes. To the extent the credit exceeds the employer portion of employment taxes due, the credit is treated as an overpayment and is refundable to the employer. The IRS is expected to provide guidance regarding the process for claiming the credit and receiving the refund.
*Under the Consolidated Appropriations Act, 2021, employers that received or receives a PPP loan are no longer prohibited from claiming the ERTC. You can claim the ERTC related to qualified wages on your 4th quarter 2020 Form 941.
If the business claims the FFCRA credit for mandatory sick leave and/or family leave, the wages associated with the FFCRA credit are not eligible as qualified wages for the employee retention credit. This prevents both credits from applying to the same wages paid by an employer.
No. As long as the employer meets the requirements for the credit (described in the Q&As above), the employer does not have to repay the credit or the resulting refunds.
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