What is Employee Retention Credit (ERC)?
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In March 2020, the US Government passed an Act, Coronavirus Aid, Relief, and Economic Security Act (CARES Act), to reduce the impact of the economic downturn during this pandemic. One such provision under this CARES Act is the Employee Retention Credit.

It is a refundable payroll tax credit against employment taxes equal to 50% of the “Qualified Wages” paid to retain employees from March 12, 2020, to December 31, 2020, and 80% of the “Qualified Wages” paid from January 1, 2021, to December 31, 2022. The qualified wages should not exceed $10,000 per employee for all calendar quarters.

The eligible employers were required to report details regarding the qualified wages and employee retention credit on their Form 941 (2020 and 2021). From 2022, the IRS has completely removed Employee Retention Credit from Form 941.

Eligible employers for Q2, Q3 & Q4 of 2020

• Partially or entirely affected by this pandemic and cannot run the operations.
• Had a massive decline in gross receipts, which is nearly 50% less than what the gross receipts were in the same quarter of 2019.
   

Eligible employers for Q1 & Q2 of 2021

• Partially or entirely affected by this pandemic and cannot run the operations.
• Had a massive decline in gross receipts, almost 80% less than what the gross receipts were in the same quarter of 2019.
   

Eligible employers for Q3 of 2021

• Partially or entirely affected by this pandemic and cannot run the operations.
• Had a massive decline in gross receipts, almost 80% less than what the gross receipts were in the same quarter of 2019
• The IRS has added an additional eligibility criterion for the 3rd and 4th quarters of 2021, i.e., Recovery Start Business.

The employer will be considered a Recovery Start Business if:

• They began carrying on any trade or business after February 15, 2020
• Has average annual gross receipts for the 3-taxable-year period ending with the taxable year preceding the corresponding calendar quarter not exceeding $1,000,000
• Not otherwise eligible due to a full or partial suspension of operations or a decline in gross receipts

Note: Severely financially distressed employer, i.e., an employer with 10% less than what the gross receipts were in the same quarter of 2019 (or 2020 if the employer didn't exist in 2019), is eligible to treat all the wages paid to the employee during the quarter as qualified wages.
 

Eligible employers for Q4 of 2021

Employers who are a recovery startup business are only eligible for Employee Retention Credit for Q4 2021.

Deadline To File Employee Retention Credit (ERC)?  

• The Employee Retention Credit deadline for the 2020 tax year is April 15, 2024, which includes all three eligible quarters (Q2, Q3, and Q4). The first quarter is not relevant as COVID-19 mandates in the U.S. only started at the end of that quarter. 
• The Employee Retention Credit deadline for all four quarters of the 2021 tax year is April 15, 2025.

How to apply for Employee Retention Credit?

If you’re an eligible employer, you can reduce the upcoming employment tax deposits to get this credit. If you are unable to cover this credit with the employer’s employment tax deposits, you can request an advance payment from the IRS. 

To find out more about the Employee Retention Credit, click here.