Who Qualifies For The Employee Retention Credit?

Are you an employer wondering if your business qualifies for the Employee Retention Credit (ERC)? If so, you’re in luck! In this article, we’ll go through all the eligibility criteria and requirements of the ERC.

We’ll discuss who qualifies, the maximum credit amount available, how to apply for it, what types of wages qualify for the credit, and records employers must maintain. With this information in hand, you can make sure that your business is taking advantage of every opportunity to save money on taxes.

So let’s get started – read on to learn more about the ERC and see if your business qualifies!

Overview of the Employee Retention Credit

You can learn about the ERTC and how it could help your small business keep its staff employed during tough times.

The Employee Retention Tax Credit (ERTC) is a federal tax credit created by Congress in 2020 as part of the Coronavirus Aid, Relief and Economic Security Act (CARES). It was designed to reward employers for keeping their employees on payroll while businesses were closed due to COVID-19.

The eligibility criteria has been revised and expanded since then, first by the Consolidated Appropriations Act (CAA) in December 2020, then by the American Rescue Plan Act (ARPA) in March 2021, and most recently by the Infrastructure Bill in November 2021. These policies extended the deadline for claiming the credit until October 1, 2021.

To qualify for this credit, employers must meet certain criteria set out by the IRS. They must have fewer than 500 full-time or equivalent employees at any time during 2020 or 2021; they must have experienced either a full or partial suspension of their operations due to a governmental order related to COVID-19; or they must have seen a significant decline in gross receipts compared to 2019.

Additionally, eligible wages are those paid from March 13th of 2020 through December 31st of 2021 for all employees whose hours are reduced but not laid off because of COVID-19-related circumstances.

The value of this credit is based on qualified wages up to $10K per employee per year with no limit on total credits claimed per employer. Businesses that received Paycheck Protection Program loans can still be eligible for this tax credit as long as they comply with all other requirements outlined above.

For more information about who qualifies for ERTC and what kinds of documents are needed when filing taxes, please consult your accountant or financial advisor before making any decisions regarding this tax incentive program.

Who Qualifies for the ERC?

To be eligible for the ERC, your business must meet certain criteria and provide evidence of a revenue decrease compared to prior years. The first set of criteria requires that you’re a private entity, not a government entity, have staff on payroll if self-employed, and were fully or partially shut down due to local government mandates in 2020 or 2021.

To demonstrate the required revenue reduction for the 2020 tax credit, gross receipts must be lower by 50% when compared to the same quarter of 2019. For the 2021 tax credit, gross receipts must be lower by 20% when compared to the same quarter of 2019. If your business wasn’t around in 2019, then you can use corresponding quarters in 2020 and 2021 as evidence for qualifying for ERTC.

Additionally, if your company is classified as a Recovery Startup Business after February 15th of 2020 and had entirely or partially shut down because of COVID-19 with gross receipts less than $1 million than it also qualifies for ERTC.

Therefore, it’s important to examine all relevant information about your business before applying for ERTC. It’s essential that businesses take time to review all requirements carefully when seeking eligibility for ERTC as there are specific guidelines that need to be followed such as having staff on payroll if self-employed or demonstrating proper revenue decline according to dates provided – either 50% decline from corresponding quarter in 2019 (for 2020 tax credit) or 20% decline from corresponding quarter in 2019 (for 2021 tax credit).

Furthermore, if businesses fall under particular categories such as being classified as Recovery Startup Businesses then different rules apply depending on their circumstances.

Therefore, it’s critical that businesses assess all factors surrounding their potential qualification for ERTC before submitting an application so they don’t miss out on any benefits they may be entitled to. It’s essential that sufficient research and preparation takes place before filing any paperwork to ensure compliance with all guidelines laid out by respective authorities.

What is the Maximum Credit Amount?

The maximum credit amount for 2021 is $10,000 in one quarter and can’t be used for PPP loan forgiveness.

To understand this limit better, consider the following points:

  • Qualified Wages:
  • 2020 Qualified Wages: The ERC for 2020 is 50% of qualified wages.
  • 2021 Qualified Wages: The ERC for 2021 is 70% of qualified wages.
  • Maximum Credit Amount:
  • Number of Quarters Covered: This maximum credit amount applies to one quarter only in 2021.
  • Eligibility Restrictions on PPP Loan Forgiveness: Any wages used for PPP loan forgiveness are not eligible for the Employee Retention Credit (ERC).

The Employee Retention Credit is a great opportunity to help businesses keep their employees during these difficult times. With its allowable limits and restrictions clearly stated, businesses can’t plan accordingly and make use of the credit as needed.

How Do Employers Apply for the Credit?

Applying for the Employee Retention Credit can be simple and straightforward – just follow these steps to get started!

First, determine what periods of 2020 and 2021 your business qualifies for an ERTC fund.

Then calculate all the qualified wages paid to employees in 2020, up to a $10,000 cap per employee across all quarters combined.

Finally, multiply this amount by 50% to determine your tax credit amount for 2020.

For 2021, calculate the qualified wages paid to each employee in Q1, Q2 and Q3 (up until September 30th).

Apply a cap of $10,000 per employee across all quarters and multiply the qualified wages up to the quarterly cap by 70%, then you’ll have determined your tax credit amount for 2021.

With these steps complete, you’ll be ready to apply for the Employee Retention Credit!

What Types of Wages Qualify?

Figuring out which wages qualify for the ERTC can be tricky, so it’s important to understand what types of wages count towards the credit.

For employers that are not considered small, qualified wages include all wages paid when the business was suspended or faced a decline in gross receipts and is not providing any services and health insurance benefits up to $10,000 per employee.

On the other hand, for small employers, qualified wages include all wages and health insurance benefits paid to an employee when the employer is considered an eligible employer during the COVID-19 pandemic; whether the business faced a decline in gross receipts or partial/full suspension due to government orders. It doesn’t matter if the employee is working or not.

Eligibility only applies if the employer meets certain criteria such as average number of employees by year. Additionally, claiming ERTC tax credit requires plenty of paperwork with eligibility requirements that can be confusing and difficult to understand without help from professionals.

Therefore, it’s highly recommended to seek assistance from a CPA firm in order to get maximum benefit from this tax credit for small businesses.

What Records Must Employers Maintain?

Now that you know what types of wages qualify for the employee retention credit, let’s take a look at the records employers must keep to document this information.

Employers must maintain all employment tax records related to qualified wages and use these records to support their claims for the employee retention credit. This includes payroll tax returns, wage statements, and other documents that can verify the amount of qualified wages paid to employees during 2020 and 2021.

It’s important for employers to keep accurate records because they’re required to report any changes or corrections made in their claims for the employee retention credit on amended return forms within 30 days of making such changes. Any errors may result in an IRS audit, so it’s in your best interest as an employer to make sure your documentation is up-to-date and comprehensive.

Failing to properly maintain employment tax records could lead to substantial penalties from the IRS, so it’s important that employers stay organized when tracking their documents related to qualified wages. In addition, employers should store these records securely for at least four years after filing a claim with the IRS – this will help ensure they have all necessary information if there are any questions regarding their claim.


You qualify for the Employee Retention Credit if your business has been impacted by COVID-19. The maximum credit amount is 50% of qualified wages, up to $5,000 per employee.

To apply for the credit, you’ll need to complete IRS Form 941 and a new Schedule R. Qualified wages can include health plan expenses and certain salary payments.

Be sure to keep records of all wages paid and claimed credits; this will help you demonstrate compliance with IRS requirements if audited.

You can now confidently take advantage of this beneficial tax credit while helping to support your employees during these difficult times.

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