The Employee Retention Credit (ERC) is a federal tax credit that is granted to businesses without need for repayment. It was introduced to incentivize employers to retain their employees throughout the COVID-19 pandemic. It is applicable for the tax years 2020 and 2021. For the 2020 tax year, businesses could potentially receive a credit of up to $5,000 per employee. In 2021, the ERC was increased to $7000 per employee.
The primary goal of the ERC is to aid businesses in recovering from the economic impact of the 2020 shutdown, compensating for pandemic-induced revenue losses, and enabling them to retain employees and sustain operations. Although the program officially concluded in 2021, businesses may qualify for the ERC without realizing it and can still file to receive the funds. Eligibility criteria include experiencing a significant decline in gross receipts during 2020 or a general decline in gross receipts during 2021, compared to the corresponding quarters in 2019.
Various types of organizations operating in the US, including nonprofits, colleges and universities, and businesses across sectors such as hospitality, retail, industrial, real estate, construction, and technology, may be eligible. Additionally, businesses that faced full or partial suspensions due to government orders, disruptions in the supply chain or vendor services, reduced workforce, limited operations, or other notable impacts caused by COVID-19 may also qualify.
