The Employee Retention Credit (ERC) also known as Employee Retention Tax Credit (ERTC) is a program that was established as part of the CARES Act in March 2020. It provides a refundable payroll tax credit to employers, equal to 50% of payroll-related costs for the eligible period, with a maximum credit of $5,000 per employee for 2020. Prior to the Consolidated Appropriations Act of 2021 (CAA), employers who had obtained a Paycheck Protection Program (PPP) loan were not eligible for the ERTC.
However, the CAA expanded the ERTC for six months into 2021 and made changes to the program, including allowing companies that received PPP loans to retroactively benefit from the ERTC. Additionally, the American Rescue Plan Act extended the ERTC for the remaining six months of 2021, making it available for the full calendar year.
For 2021, the definition of a small employer has been expanded from 100 or fewer employees to 500 or fewer employees. Additionally, the credit as a percentage of qualified wages has increased from 50% to 70%, resulting in a credit of up to $7,000 per employee for each of the four quarters in 2021 (or $28,000 total per employee). The definition of a significant revenue decline has also been adjusted to less than 80% of gross receipts for the same quarter in 2019, and employers have the option to calculate this based on the immediately preceding quarter.
- Internal Revenue Service (IRS)
- The CARES Act
- American Institute of CPAs
- Employee Retention Tax Credit: What You Need to Know
U.S. Department of the Treasury
- What Is The Employee Retention Credit (ERC), And How Does The Program Work?