Recruiting & Staffing

Let’s Talk About Employee Retention Credit

By: Jaya Seyyadri
Oct 11, 2021 • 4 min read

What is Employee Retention Credit?

Employee retention credit (ERC) can broadly be defined as a refundable tax credit that businesses can claim on qualified wages paid to their employees. This refund is designed to encourage employers to keep paying workers, by making wages more affordable.

It’s no secret the pandemic has make things complicated for employers and workers alike. Employee retention credits can help ease the burden. In this blog, we will uncover the details you might be wondering about when it comes to employee retention credit. So, let’s dive right in!

person pouring milk on glass

Related Employee Retention Credit Acts

First, let’s take a look at employee retention credit acts, to get a better understanding of general guidelines.

2020 CARES Act – For qualifying employers, credit can be claimed against 50% of qualified wages paid. Up to $10,000 per employee yearly for wages paid between March 13th and December 31st, 2020.

2021 Consolidated Appropriations Act – For qualifying employers, credit can be claimed against 70% of qualified paid wages. For the first two quarters of 2021, the number of wages that qualify as credit includes $10,000 per employee per quarter.

2021 American Rescue Plan Act – From this act, credit from 70% of qualified wages of up to $10,000 per quarter per employee can be obtained for all of 2021. Simply put, this equals a maximum of $7,000 per employee per quarter or up to $28,000 for all of 2021.

Families First Coronavirus Response Act (FFCRA)

In addition to employee retention credit, the Families First Coronavirus Response Act helps employers afford paid sick and family leave for those affected by the coronavirus. This includes both a refundable paid sick leave credit and a family leave under the FFCRA.

This reimburses employers for the cost. FFCRA paid leave benefits have no longer been mandatory since January 1 of 2021. However, employers that continue to provide paid leave can claim tax credit under the FFCRA until September 30th, 2021.

What Employers Qualify for the ERC?

Most employers, including colleges, universities, and hospitals, can qualify for employee retention credit. There are two factors that determine eligibility. One of the factors must apply in the calendar quarter for employers that wish to use the credit.

  1. A business or trade that was fully suspended. Or, partially suspended and had to reduce business hours due to government orders.
  2. An employer that experiences a significant decline in gross receipts. This is the tax on the total gross revenue of a company regardless of their source.

Based on IRS guidance, most businesses generally don’t meet the first factor, as the following would not qualify:

  • Businesses that are considered essential unless their supply of material or goods is disrupted.
  • Businesses that have been disrupted but can continue operating through a telecommunication network

These businesses may be able to qualify with the second factor of experiencing a significant decline in gross receipts.

What Wages Qualify When Calculating the Retention Credit?

When calculating employee retention credit, wages and compensation, in general, that are subjected to FICA taxes along with certain health expenses are taken into consideration. These payments must have been made within a specific time frame. From March 12, 2020, and December 31, 2021.

The IRS has many methods of calculating the amount that qualifies under health expenses. Generally, this includes the employer and employee pre-tax portion and excludes any after-tax amounts.

smiling man standing between brown concrete buildings at daytime

How Do Employers Claim Employee Retention Credit?

In order to claim employee retention credit, employers must report their total qualified wages and related health insurance costs for each quarter when filling out Form 941, their quarterly employment tax returns.

Employers are able to retain a portion of employment taxes. This includes federal income tax withholding, social security, and Medicare taxes. Both the employees’ share and employer’s share of Social Security and Medicare taxes are considered up to the amount of credit without penalty. This takes into account any reduction for deposits in anticipation of paid sick leave and family leave credit.

Final Thoughts

We hope this guide helps to answer some of your questions about employee retention credit. Remember, every situation is different. So, we advise speaking to a tax professional when making financial decisions!

Get a job now when you make an account with us. JobGet is the #1 mobile-first job platform, connecting thousands of applicants and companies across the U.S. Now available on Google Play and the Apple App Store!


Leave a Reply