The Employee Retention Tax Credit (ERTC or ERC) is a refundable tax credit introduced under the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) in 2020 to encourage employers to keep employees on payroll during the COVID-19 pandemic. It offered financial relief to eligible businesses affected by government shutdowns or significant revenue declines by allowing them to claim a credit against certain employment taxes.
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Key Facts
- Refundable Payroll Tax Credit: The ERTC allowed eligible employers to claim a percentage of qualified wages, including health insurance costs, paid to employees.
- Covered Periods: Originally applied to wages paid from March 13, 2020, through December 31, 2020, and later extended into 2021. The credit amount and eligibility criteria varied by year.
- Eligibility: Employers qualified if they fully or partially suspended operations due to government orders related to COVID-19 or have experienced a significant decline in gross receipts (50% in 2020, 20% in 2021 compared to the same quarter in 2019).
- Applies to All Business Sizes: Though benefits were greater for small to midsize businesses, large employers could also qualify under limited rules.
- Claimed via IRS Form 941: Employers claimed the credit by reducing deposits on Form 941 (Quarterly Federal Tax Return), or by requesting an advance using Form 7200 (prior to its discontinuation).
- Can’t Be Combined With PPP Wages: Wages used to qualify for Paycheck Protection Program (PPP) forgiveness cannot also be counted toward ERTC.
- Retroactive Claims Still Possible: Eligible businesses may still file amended Form 941-X for prior quarters in 2020 and 2021 (usually within a 3-year window).
1. What is the Employee Retention Tax Credit (ERTC)?
It was a refundable payroll tax credit for businesses that kept employees on staff during the COVID-19 pandemic, despite experiencing financial hardship.
2. Who qualified for the ERTC?
Businesses that either faced government-mandated COVID-19 shutdowns or had a significant drop in revenue compared to 2019.
3. How much was the ERTC worth?
- Up to $5,000 per employee in 2020
- Up to $7,000 per employee per quarter in 2021 (for the first three quarters)
4. Can I still claim the ERTC?
Yes, eligible businesses can file amended payroll tax returns (Form 941-X) for past quarters, typically within 3 years of the original filing date.
5. Can businesses claim both PPP and ERTC?
Yes, but not for the same wages - you can’t double-dip between PPP forgiveness and ERTC wages.
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