How To Claim The Employee Tax Retention Credit

How Much Is the Employee Retention Credit?

Businesses can only claim a refundable credit for wages paid in 2020 and 2021. For the qualified wages paid between March 12, 2020, and January 1, 2021, the employer can receive up to $5,000 for the whole 2020 tax year per employee wages and health insurance paid.

For 2021, the qualifying rules updated where an employer receives a higher tax credit within the first three quarters, the employer can receive up to $7,000 per employee for every qualifying quarter.

For you to qualify for ERC, you only need to qualify for any 1 or mix of the following 3 conditions:

  • Revenue drop compared to 2019. Specifically 50% for any one quarter in 2020 and 20% for any one quarter in 2021
  • Government orders; and/or
  • Recovery startup.
  • Less than 500 W2 full time equivalent employees.


What is the Threshold Employee Number for ERC?

The number of employees you had on a full-time basis in 2020 and 2021 will determine how much you can qualify for ERC.

In 2020, if you had more than 100 full-time employees, you would only receive a tax credit for the employees you paid but were not working. On the other hand, if you had less than 100 full-time employees, you can claim credit for all workers whether working or not.

For 2021, the government raised the employee threshold to 500 employees. What does this mean? If you had more than 500 full-time employees in 2021, you could only claim a tax credit for wages paid to employees who were not working. Alternatively, businesses with less than 500 full-time employees can receive ERC for all employees, whether they are working or not.

How Do You File for Employee Retention Credit?

Filing for an ERC tax credit is a relatively easy process. Qualifying and calculating the maximum is complicated and difficult if you don’t have in-depth expertise, experience, and knowledge of the rules and regulations. Below is the basic overview of what is needed and the process to file your ERC claim.

1. Confirm which or mix of the 3 qualifying conditions you qualify for

This is very important you get this right and you are qualifying for all that you can qualify for to ensure you are not leaving money on the table.

2. Gather supporting financial information about your business

Ensure you collect all the relevant company information before applying for ERC Credit. In addition to others, the main required documents include but are not limited to:

  • 2020 & 2021 Quarterly 941’s
  • 2020 & 2021 Detailed Payroll Journals
  • 2020 & 2021 Quarterly Profit and Loss Statements

3. Collect all PPP Loan documents

Initially, you were not eligible for ERC if you had a PPP loan. Following the passing of the Consolidated Appropriations Act (CAA), PPP loan holders can now access the tax credit. The PPP loan documentation consists of the following:

  • PPP loan amount
  • Loan forgiveness, as applicable

It is important to note that you cannot apply for ERC and PPP forgiveness for the same payroll expenses.

4. Calculate and Package your ERC Claim

After collecting all the necessary information and understanding which mix of the 3 qualifying conditions you qualify for, complete the 941-X Form.

Before submitting the returns, check whether you have entered the information accurately. Then submit your claim to the IRS.

If you are finding this complicated and/or don’t have the time to put all of this together and ensure you’re doing it correctly so you don’t leave any money on the table, there are third-party companies that specialize in this program and can help hold your hand the whole way through the process so you can save on time and headache and focus on what you do best, running your business.

What Is The Cost To Hire Professional Help?

If you need any help with ERC filing, you can seek professional help from a credit firm. Some of the services they offer include:

  • Check whether your business qualifies for ERC.
  • Optimize the amount of ERC credit received.
  • Prepare employer’s legibility documentation.
  • Complete filling all tax return forms and other forms of paperwork.

Remember, you can get up to $26,000 per employee

How Long Does The Employee Retention Credit Program Run?

Employers have up to the end of 2024, to claim a tax refund. With the Infrastructure Investment and Jobs Act’s passing in November 2021, The government reduced the fourth quarter from being a qualifying quarter in 2021. Therefore, the government has already reduced the available claim amount by $7,000 per employee from up to $33,000 to $26,000.

However, Recovery Startups can still claim a tax credit for qualified wages paid in Q3 and/or Q4 2021.

Recovery Startups are those businesses that began operations after February 15, 2020. For a business to fall under this category, it must also have less than $1 million in gross revenue and with at least one W2 employee.