Understanding the Employee Retention Credit

The Employee Retention Credit (ERC) should not be mistaken for a loan that requires repayment. Instead, it is a refundable tax credit designed to encourage employers to retain employees during the COVID-19 pandemic. This credit is available for tax years 2020 and 2021, applicable to wages up to $10,000 per employee.

Businesses qualify for the ERC if they have experienced significant and gross declines in 2020 and 2021, operate within the United States, have undergone a full or partial shutdown mandated by authorities, and meet the criteria of a Recovery Startup Business in the third or fourth quarter of 2021.

In addition to meeting the qualifying conditions mentioned above, the ERC also requires qualifying wages. In 2023, businesses claimed the ERC by amending their tax filings. On average, it takes 4-10 months for the IRS to process ERC claims and mail checks.