What is ERC? A Complete Guide to the Employee Retention Credit

The Employee Retention Credit has been a hot topic for businesses recently and you’ve probably heard about it, but still have some questions. So, what is the ERC? The Employee Retention Credit (ERC) is a refundable payroll tax credit filed against employment taxes. ERC was introduced with the Coronavirus Aid, Relief and Economic Security (CARES) Act in 2020 during the COVID-19 pandemic to help businesses recover from the economic fallout that occurred.

It essentially provides funding to businesses to make up for some revenue lost during the pandemic. Some companies might even argue that the ERC has been their lifeline post-COVID-19, enabling them to retain critical employees and continue business operations.

The ERC has been amended three separate times after it was originally enacted as part of the CARES Act by the Taxpayer Certainty and Disaster Relief Act of 2020 (Relief Act), the American Rescue Plan (ARPA) Act of 2021 and the Infrastructure Investment and Jobs Act (IIJA).

Credit from the ERC can potentially reach up to $26,000 per employee for 2021. It essentially rewards companies that had employees on payroll during the pandemic. Since the United States government orders created restrictions that financially affected businesses, this is a way of compensating those impacted businesses.

Key Takeaways

• The ERC was established as part of the CARES Act and extended as part of the American Rescue Plan Act.
• The ERC is a fully refundable tax credit that was set up by the government as a result of the COVID-19 pandemic.
• Though the ERC program officially concluded at the end of November 2021, you can still file.
• ERC guidelines allow businesses to receive a rebate from $5,000 and 26,000 per employee from 2020 and 2021.
• Your business can earn back between $5,000-26,000 per employee from 2020 and 2021.
• If your business suffered within the last few years during the pandemic, you most-likely will qualify to file.
• Notice that the ERC is a payroll tax credit, not an income tax credit. Therefore, it must be reported on Form 941.
• Businesses who received Paycheck Protection Program loans may still qualify for the ERC.
• We assist you with forms like these to help ensure your information is accurately filled out and would be happy to set up group meetings to guarantee total transparency during this process while providing filing guidance for your business.

Finally, partnering with us can save you time and effort when filing your ERC. Whether it be finding if your business is eligible for ERC or filing for advance payment of employer credits and R&D tax credits, we’re here to walk you through the whole process and ensure that your statement is accurate.

How Was This Refundable Tax Credit Established?

Because many businesses faced economic decline during the pandemic, the U.S. government passed the ERC as an opportunity for businesses to get funded for lost revenue. It encouraged employers to keep their employees on the payroll, even if they were not working during COVID-19.

The goal was to sustain the economy during the coronavirus pandemic. Congress voted to pass a $1.9 trillion relief bill so that businesses could benefit. The IRS initially predicted that 70 percent of businesses would claim the Employee Retention credit.

In the early stages of ERC under the CARES Act, not as many businesses were able to qualify as Congress intended, due in part to an inability to meet the requirements for sharp revenue declines. Businesses found ways to adapt and sustain revenues at only marginally lower levels than before. Expansions of the ERC became necessary to achieve the intended benefit for more businesses.

The Families First Coronavirus Response Act was passed at the same time as the CARES Act. Many employers can qualify for both ERC and the FFCRA.

Since March 2020, the ERC program has undergone many changes. With them came questions from both businesses and tax professionals. The Internal Revenue Service (IRS) responded with clarifying guidance on frequently asked questions, clearing a path for businesses and their tax partners to claim accurate benefits with confidence.