The Employee Retention Credit (ERC) is a refundable tax credit established by the Department of the Treasury and the Internal Revenue Service (IRS) under the Coronavirus Aid, Relief and Economic Security (CARES) Act. This credit incentivizes small businesses to keep their employees on the payroll, even if sales volume has decreased. It is available to employers who meet certain requirements and is equal to 50% of the qualifying wages paid to employees. Government employers and self-employed individuals are not eligible for the ERC with respect to their own income.
However, a self-employed person who employs people in their trade or business and meets the requirements to be an eligible employer may be eligible to receive the employee retention credit with respect to qualified wages paid to employees. Organizations described in section 501(c) of the Internal Revenue Code (the “Code”) and exempt from taxes under section 501(a) of the Code may also be eligible employers for the purposes of the employee retention credit if they meet all other requirements. Tribal governments and tribal entities that carry out a trade or business may also be eligible employers for the ERC, provided they meet all other requirements. Employers cannot calculate an employee retention credit based on salaries they have previously used to receive a Paycheck Protection Program (PPP) loan.
Additionally, wages that qualify for this credit do not include wages for which the employer received a family leave and paid sick leave tax credit under the Families First Coronavirus Response Act. The ERC was available for wages paid after March 12, 2020 and before January 1, 2021. Business owners who weren't recovering startups weren't eligible for the employee retention credit for wages paid after September 31. Employees are not counted for this credit if the eligible employer is allowed a work opportunity tax credit for the employee.
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