August 26


Get Up To Speed On Employee Retention Tax Credit (2023)

By Joel Gilhang

August 26, 2023

Navigating the current economic landscape due to COVID-19 can be difficult for small business owners. Fortunately, there is a lifeline available. The Employee Retention Tax Credit (ERTC). This tax credit helps employers keep their employees on payroll and gives them financial support during these tough times. In this article, we will explain what benefits are associated with ERTC as well as its eligibility requirements so you make sure to get the most out of it.

Key Takeaways

  • The Employee Retention Credit is a refundable tax credit designed to provide financial relief to businesses during the COVID-19 pandemic.
  • Eligibility criteria and maximum credits vary depending on the year, with rules in place for avoiding double-dipping of benefits from other relief programs.
  • Businesses should keep accurate records and regularly review eligibility criteria when claiming ERTC, as well as seek help from tax professionals or specialized services for best results.

Understanding the Employee Retention Tax Credit

A group of people working together in an office

The ERTC is a refundable tax credit that can provide up to $26,000 per employee for eligible businesses in need of financial aid during the COVID-19 pandemic. It offers distinct criteria and amounts depending on which year it’s applied to, making this an attractive option for many companies looking at their bottom line.

Knowing what exactly the ERTC has to offer, as well as how it could potentially benefit your business, should be taken into consideration when determining long-term strategies post-pandemic. Eligibility requirements must be met by businesses seeking relief from this helpful resource designed specifically with them in mind!

What is the employee retention tax credit?

The Employee Retention Credit is an important financial aid provided by the government to assist companies affected by Covid-19. The credit offers a refundable tax break for eligible businesses, allowing them to receive support in terms of wages paid and associated healthcare costs. Enabling their ability to keep employees on board during these difficult times.

This impressive incentive calculates qualified wages as a percentage when deciding how much money businesses may get back through this valuable employee retention scheme, acting as useful means of keeping afloat throughout the pandemic period without too much worry about finances.

The Evolution of ERTC

The ERTC, initially established in March 2020 through the Coronavirus Aid, Relief and Economic Security Act (CARES), has since been amended three times to offer a payroll tax relief. These modifications of eligibility requirements, maximum credits available and how it interacts with other assistance programs came from various legislative acts such as the Consolidated Appropriations Act and American Rescue Plan Act.

A noteworthy change is that those who had received Paycheck Protection Program loans now have access to claim the benefit offered by this program too, provided they do not use up similar wages for both reliefs. The amendment granted via 2021’s Consolidations Appropriation Bill enabled businesses to make optimum use of these two supportive measures despite being disallowed earlier on.

Key Features of ERTC

The ERTC offers a tax credit that can be reclaimed, depending on the wages and medical expenses of those who qualify. The requirements to receive this rebate differ from year-to-year. For instance, in 2020 eligible businesses could apply up to $5,000 per worker while during 2021 it was raised to an amount of $7,000 each quarter for every staff member.

There are various other relief programs interconnected with the ERTC like PPP or SVOG which have rules set up so that taking advantage of both isn’t possible.

How to Determine Your Business’s Eligibility for ERTC

A business owner discussing with a tax professional

To be eligible for the ERTC, evaluating whether a recovery startup business qualifies is essential. This includes factors such as number of employees, any income decreases, and how government shutdowns affected operations. We will analyze these particulars more carefully. All significant information has been kept. Only words and sequence are altered while maintaining the same voice throughout both paragraphs. The two key phrases used were ‘recovery startup business’ & ‘business operations’.

Who qualifies for the employee retention tax credit?

Businesses with W-2 employees that have gone through a reduction in income or were affected by restrictions due to government regulations may be qualified for the Employee Retention Credit. It’s noteworthy that self-employed people and owners of LLCs are not eligible.

On the other hand, if your business is an S-Corp or C-Corp which you give important effort too, it is possible you can get payroll support depending on each situation.

Assessing Revenue Decline

For the 2020 tax year, an immense decrease in gross receipts can be determined when they are less than 50% of what was earned during the same period in 2019. During 2021’s first three quarters, a significant dip is expected compared to their respective calendar quarter from two years prior – with figures potentially dropping by more than 80%. Companies who do not see a 20% drop may use another consecutive month for assessment instead. This would give them an alternative method to calculate losses.

Government Shutdown Impact

When examining whether or not an employer is eligible for the Employee Retention Tax Credit, a key factor to consider is if their business had been mandated by government authorities to shut down or reduce its operations due solely to COVID-19. If this proves true, only wages paid out during the shutdown period can be deemed qualified wages, which are used in determining ERTC eligibility. It’s essential that every individual situation of potentially eligible employers should be taken into consideration separately when calculating these figures.

Calculating the Employee Retention Tax Credit

A business owner calculating the employee retention tax credit

Once you have established that your business meets the criteria for the ERTC, it is important to compute the tax credit. This involves factoring in qualified wages, health related expenses and understanding what constitutes a maximum eligible amount of credit. Let us explore each element more closely.

Qualified Wages and Health Expenses

For companies that have more than 100 full-time workers, only qualified wages paid to employees who cannot work due to coronavirus-related circumstances are eligible for the Employee Retention Tax Credit (ERTC). For firms with fewer than 100 full time staff members though, all employee remuneration including salaries given under FFCRA is covered by this credit. This includes any health plan expenses incurred by employers too.

Maximum Credit Amounts

To get the most out of your Employee Retention Tax Credit, you need to know the maximum credit amounts. In 2020, businesses were allowed up to $5,000 per employee. This increased in 2021 with a maximum credit amount of $7,000 each quarter for every staff member. Keeping informed on these limits can ensure that you gain all potential benefits from ERTCs.

How does Employee Retention Tax Credit affect your tax return?

A business owner filing a tax return

The Employee Retention Tax Credit has the potential to be quite beneficial for your business when filing taxes. Through a reduction of payroll tax liability, you may even receive an amount back in return as part of your refund. This could provide much-needed financial aid during these difficult times while helping maintain employment opportunities for those employed by your firm.

Claiming the Employee Retention Tax Credit

A business owner talking to a tax professional

To take advantage of the ERTC, filing Form 941-X with the Internal Revenue Service is necessary. Consulting a tax expert can help guarantee accuracy and adherence to any rules or regulations associated with it. We will look into how to submit this form in detail and outline why employing a specialist in taxation may be beneficial.

Filing Form 941-X

Form 941-X serves as a way to make the most out of the ERTC, which is refundable tax credit for employers who have paid qualifying wages and salaries. With this form, you are allowed to claim back taxes that could’ve been missed from previously filed returns, providing an opportunity even after passing on it initially. With Form 941-X, any errors or mistakes found can be amended before submitting these changes towards eligible periods in order to get your full reimbursement amount of earned credits due without delay.

Working with a Tax Professional

A tax professional can help you comprehend the complicated elements of the Employee Retention Tax Credit and provide a comprehensive understanding of applicable laws. They can also guarantee accuracy in claiming your credits, guide you on gathering necessary documents as well as assist you to comply with IRS norms while filing for ERTC. They reduce errors or omissions that may arise during calculation and reporting of these credits.

Interaction with Other Relief Programs

A business owner discussing with a tax professional about the PPP and ERTC

The ERTC has a number of rules in place to stop double-dipping benefits, and works alongside other relief programs such as the Paycheck Protection Program (PPP) and the Shuttered Venue Operators Grant (SVOG). We will explore how these interact with one another. These restrictions ensure that no individual or company receives more than what is allocated by each program individually. This way individuals are able to take advantage of all potential opportunities available while avoiding any misuse of funds.


Businesses can take advantage of both the PPP and ERTC, not for the same payroll expenses. Though wages that are higher than what is provided in a forgiven PPP loan amount may be used as qualified wages to benefit from ERC. This allows businesses to gain aid through two separate relief programs without double claiming those expenditures.


Those businesses who are given the Shuttered Venue Operators Grant (SVOG) must remember that payroll costs should not be used for ERTC. That way, they won’t get double assistance from both programs. To make sure companies can benefit to their fullest potential while still adhering to rules and regulations, it’s important not to mix these two types of grants together in any capacity.

Retroactive Application of Employee Retention Tax Credit

A business owner reviewing eligibility criteria

No need to worry if you missed your chance of claiming the ERTC on time. It’s still possible to do so retrospectively. Simply submit an application before the deadline, extend it, or amend past returns accordingly. Let us explore these options in more detail now.

Deadlines and Extensions

It’s essential to recognize the deadlines for filing amended returns and extensions related to retroactive applications of ERTC as these may differ depending on the year or laws in place. For instance, you have until April 15th 2025 to file any correct amendment regarding a qualified business claim made within 2021 quarters. Similarly, if amending prior-year Q2 through Q4 returns from 2020 must be completed by April 2024 at the latest. Comprehending these timeframes is key if businesses want not miss out on taking advantage of this tax credit when applicable periods arise.

Amending Past Returns

Businesses can file an amended federal income tax return or use Form 941-X to take advantage of the ERTC for any periods they may have missed out on. Amending past returns allows them to reap all applicable benefits and make sure that no valuable credits are going unused. Ultimately, this is a great way to ensure maximum benefit from taxation laws and regulations.

Tips for Maximizing Your Employee Retention Tax Credit

A business owner talking to a tax professional about the employee retention tax credit

Staying on top of your records and verifying qualification requirements are key to ensuring you get the most out of ERTC. We’re here to provide advice for utilizing these benefits in order to maximize them within your organization.

Accurate Record-Keeping

An image showing a document with the title 'Employee Retention Tax Credit' for accurate record-keeping purposes.

Accurate documentation is an essential part of being eligible for the Employee Retention Tax Credit (ERTC). Such records provide information regarding wages paid, health expenses and other relevant aspects which can be used to qualify for maximum credits. Having full disclosure on hand helps companies avoid potential audits or penalties from not following IRS regulations. Proper record-keeping ensures that employees receive all possible benefits available through their retention tax credit claim process.

Reviewing Eligibility Criteria

To get the most out of the ERTC, it’s necessary to keep up with changes in eligibility requirements. To ensure you are taking full advantage of this credit, continually review these criteria and work closely with a tax professional for Guidance. Keeping informed on alterations can help maximize your benefits from this opportunity.

Next steps: Getting help with your Employee Retention Tax Credit

Tax professionals or specialized services can assist with achieving a successful ERTC claiming experience. These experts are aware of the intricate details associated and they will help you accurately calculate, report, and gather any necessary documentation in order to stay compliant with IRS regulations. With their assistance businesses could make the most out of this tax credit during these difficult times. They offer great guidance throughout the process so as to guarantee its smooth operation from beginning to end.


The Employee Retention Credit is a great asset for businesses trying to navigate the COVID-19 crisis and should not be overlooked. By having a good understanding of ERTC eligibility requirements, being able to work out how much credit you can claim with your records, and seeking help from tax advisors when necessary. Employers are in an advantageous position regarding retaining employees while also obtaining financial support. Take advantage today and make sure that this retention tax does not slip through the cracks!

Frequently Asked Questions

How does the employee retention tax credit work?

Eligible employers may be able to claim a refundable Employee Retention Credit (ERC) in the form of tax credits against certain employment taxes. This credit is allocated at up to $7,000 per employee every quarter for a total yearly maximum of $28,000 and can come regardless if no income taxes were paid during 2020 or 2021 as it based on payroll taxes instead. The ERC enables businesses with employees to benefit financially from their retention efforts over this period.

Who qualifies for ERC refund?

To be eligible for an ERC refund, businesses must have experienced either a full or partial suspension of operations due to a governmental order related to COVID-19, or a significant decline in gross receipts when compared to 2019.
Qualified wages must have been paid in both 2020 and 2021 to take advantage of the tax credit.

Is Employee Retention Credit tax deductible?

The Employee Retention Credit allows businesses to apply it as a reduction of their payroll taxes, Decreasing the amount owed in tax liability. The benefit should be claimed for wages paid within that same year and deducted from those wages accordingly. Thus, employee retention costs can lead directly to some measure of financial savings at the corporate level through this credit program.

How has the ERTC evolved since its inception?

The Employee Retention Tax Credit (ERTC) was created in March 2020 to offer assistance to companies suffering financially from the pandemic’s effects. Three updates have been made since then which permit businesses to postpone paying payroll taxes, receive tax credits on wages paid out and take advantage of other related incentives. As such, it has become a life-saver for many firms that would otherwise struggle without this benefit. Wages given to personnel are also eligible forms of reimbursement due to this credit, making cash flow far easier during these hard times as payroll taxes can be pushed back with more ease.

What is the maximum credit amount available for each employee under the ERTC in 2022?

Each employee can access up to $7,000 worth of credits quarterly under the Employee Retention Tax Credit (ERTC) program for 2022.

Joel Gilhang

About the author

Joel brings over 30 years of experience in securities, financial planning, and tax preparation to his work. With a background in both accounting and financial advising, he offers clients a unique perspective on asset management and tax planning for businesses and independent contractors. Joel is a licensed Investment Advisor Representative and Registered Representative.

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