Employee Retention Credit: What it is and How to Claim

With every economic crisis comes great uncertainty for business owners. Whereas businesses have to consider laying off business employees, those employees also tend to lose their income source and cut expenses. Thus, as a chain reaction, businesses also lose their sources of earning revenue. It is one situation that every government wishes to prevent. Therefore, they introduce ERC requirements for businesses. 

ERC, or Employee Retention Credit, serves as a lifeline for those businesses losing their revenue resources and struggling due to the financial crisis.

ERC is a refundable credit introduced for employees to bring financial stability to them. This credit is refundable; employees can claim it on specific payroll taxes. Now businesses no longer need to file for a payroll tax return to claim the credit. They can immediately access it by reducing their payroll tax deposits. Or they can request an advance from the IRS. 

The best thing about ERC is you don’t even have to pay it back. Though ERC already ended officially in 2021, businesses can still claim it in the proceeding years. 

An Overview of ERC

The objective behind forming ERC was to establish a scheme to provide employees with additional aid during the pandemic of Covid 19, under the Relief, and Economic Security Act of 2020, also known as the CARES Act. The relief program has seen several expansions since its beginning, and the final amendments made in 2021 were final. Whereas other pandemic relief programs may require returning the credit amount, ERC is an aid that businesses no longer need to return once received. This scheme is more of a financial aid than a loan, so there is no need to pay it back.

Here are a few examples of how it has helped employers in the past:

ERC 2020

In 2020 alone, individual employees received around 50% of the qualified wages for a maximum tax credit of $5,000.

ERC 2021

By 2021, there was a rise in qualified wages, reaching 70%. Hence, individual employees receive this amount quarterly. The maximum amount paid under ERC was $21,000 per employee. 

The qualified wages for ERC

For employers to be qualified for ERC, they must meet the qualified wage requirement. This qualifying wage requirement will include any salary paid to employees for a quarter. You can also have your entire healthcare expenses spent on employees under ERC, even if your business does not pay any other wages to the employees.

How to qualify for ERC requirements

There are a few requirements that an employer has to meet to be eligible for ERC. Even though you may not be capable of meeting all of those ERC requirements, you still have to fulfill at least one of them. Here is a list of conditions that will qualify your business for ERC:

  • If your company has suffered any partial or complete loss due to pandemics, it will be eligible for ERC.
  • The other qualifying scenario is when your business has seen a considerable decline in gross receipts.

The definition of “decline in gross receipts” has changed in previous years. 

Whereas in the 2020 tax year, businesses were required to have a 50% drop in their gross receipts for a certain quarter compared to the corresponding quarter of 2019, they were also required to have around 100 full-time employees. Owners were excluded from this requirement. 

The tax year 2021 required a 20% minimum gross receipts drop for a quarter compared to 2019’s quarterly drop. Also, the business needs 1-500 full-time W-2 employees. ERC will consider employees full-time only when they work at least 30 hours per week and 130 hours a month.

Claiming ERC- the ERC requirements

ERC does not require offsetting any income taxes for small businesses. The only purpose behind the establishment of ERC is to reduce the amount employers pay as social security tax.

ERC offers two different options for taxpayers to claim the credit:

  • Employers could reduce their employment tax deposits using the amount of credit ERC offers. Moreover, if the ERC payout is more than the payroll tax deposits, taxpayers could also get an advance credit by requesting after submitting Form 7200.
  • Fill the Form 941 and claim the ERC on your Quarterly Federal Quarterly Tax Return. It allows employers to get a refund on the tax deposits made in the previous taxation periods.

As the ERC expired in 2021, the only possibility for obtaining it afterward is to file an amendment Form-941 X for a preceding quarter in which your business was eligible for a payroll tax credit.

File for Employee Retention Credit Today with ERC Experts 

If your company is eligible for employee retention credit and requires filing, ERC experts at Claim ERC Credit can help! They are a specialty payroll company with a team that offers expertise with ERC requirements. Your small business could take advantage of CARES Act Employee Retention Credit (ERC) if it has suffered loss by epidemics negatively. Take the help of Claim ERC Credit specialist services today.


Will I be eligible for ERC if I received a PPP loan previously?

Your business will certainly be qualified for ERC even if it has received a Paycheck Protection program loan in the past. Though, there will be one condition that must be met. You will not be able to apply the credit for those wages that were already forgiven or could be forgiven under the PPP loan program.

Do you consider ERC as an income when you get it?

Though ERC income doesn’t come under any taxes, you should reduce your wage expenses by the credit amount you receive as ERC. You must ascertain that you have reduced the wage expenses from your credit for all those years you have paid the employees’ wages.

How long will it take for the IRS to offer a refund after filing an amended Form 941-X?

It may take the IRS from six to sixteen months to provide a claim once you file an amended Form 941-X. You can take assistance from ERC experts to help you streamline the refund process.