The Employee Retention Credit (ERC) is a federal incentive program designed to encourage businesses to keep their employees on payroll. On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which expands the qualifying deadlines and restrictions for the ERC, as well as other incentives. All businesses in the United States are eligible for the ERC, although not all companies will qualify. To determine eligibility, employers must declare their ERC on their payroll tax return (or on their third payer's payroll tax return).
The credit is fully refundable, meaning that if the amount of the credit exceeds certain federal employment taxes owed by the eligible employer, they can receive a refund. The ERC is equivalent to 50 percent of the qualifying wages (including qualifying health plan expenses) that an eligible employer pays in a calendar quarter. Disaster loan counselors can help businesses with the complex and confusing ERC program. Thomson Reuters has also updated their ERC tool to help employers determine if they qualify for the credit.
Eligible recovery startups, as well as tax-exempt organizations, can use Form 7200 to obtain an advance on the ERC. To the extent that such credits accumulated or received by the non-federal entity are related to the permitted costs, they must be credited to the federal award as cost reduction or cash reimbursement, as appropriate. For more information on how to apply for the refundable ERC, see How to Apply for the Employee Retention Credit. For more information and examples on determining the maximum amount of an eligible employer's ERC, see Determining the Maximum Amount of an Eligible Employer's Employee Retention Credit.