What is Employee Retention Credit: A Comprehensive Guide

COVID-19 has affected the world's economy very badly. From every small business to the big company, Crona left everyone in a disastrous state. And as a result, we are now in the era of great resignation. Companies are struggling to retain their employees.

To save the employers and employees from the financial crisis, the government has come ahead with plans like Employee Retention Credit for the employer's and employee's welfare. ERC basically helps in payroll financing for small business. However, to get the benefit from the ERC, first, employers must meet the eligibility criteria. Here, we will try to explain everything to you.

So, What Is ERC ( Employee Retention Credit)?

ERC is a type of refundable tax credit facilitated by the government. It is the fifty percent of the qualified wages that the eligible employers pay their employees. The maximum amount that an employer can retain for each employee is $10,000. However, the amount depends on the calendar quarters. You can check any changes in the amount on the government's respective website.

And, Who Is Eligible For The ERC?

If an employer has carried on their business during the calendar of 2020 or the first quarter of 2021, they can be eligible for the ERC. Tax-exempt organizations can also benefit from the ERC. However, the government has specified some qualifications to be eligible.

Employers whose business was fully or partially suspended due to Covid- 19 restriction imposed by the government in any calendar quarter of 2020 and the first quarter of 2021 or have experienced a significant decline in gross receipts during the calendar quarter can apply for the ERC.

The tribal governments and tribal entities may also apply for the ERC if they have carried on their business or trade during the calendar quarter of 2020 or in the first quarter of 2021. No self-employed individuals are eligible for the ERC. However, they can apply for the ERC benefits for their employees. Also, if an employer is already receiving the PPP loan under the CARES Act, they can't apply for the ERC.

What Are The Benefits Of The ERC?

The main motive of the ERC is to save a small business from the financial crisis. If an employer is eligible for the ERC, he will receive 50 percent of the qualified wages to be paid to the employees. Qualified wages will include the wages and the compensation that an employer-paid in the calendar quarter of 2020. The maximum amount that an employer is eligible to take with respect to each of his employees is $10,000, which makes the maximum credit for the qualified wage paid to each employee $5000 (fifty percent).

Also Read: Paycheck Tax Reduction For Employers Affected by Covid-19

How To Apply For The ERC?

If an employer is eligible to take the benefits from ERC, he can apply for the ERC with IRC. Or they can also seek guidance from the ERC consultant because ERC rules get modified from time to time by the government, so sometimes it becomes complex to qualify for the ERC.