What is employee retention credit (ERC) ?

Employee Retention Credit (ERC) is a type of tax credit available to employers in the United States as part of the CARES Act, a law passed by Congress in 2020 to provide economic relief in response to the COVID-19 pandemic. The ERC is designed to help employers keep their employees on payroll and retain their jobs during a difficult economic period caused by the pandemic.

The ERC credit is available to employers that have experienced a significant decline in gross receipts due to the pandemic, and the credit is calculated based on the employer's increase in wages paid to employees during the year, compared to the prior year. Employers can claim the credit on their quarterly Form 941. The credit can be claimed on wages paid from March 13, 2020 through December 31, 2020 and is equal to 50% of the qualified wages up to $10,000 per employee per year.

Self-employed individuals are also eligible for ERC credit under the same conditions, except that the credit is based on self-employment income.

The ERC credit is intended to encourage businesses to retain employees and increase wages, which in turn should help to stimulate economic growth. The credit is also retroactive, which means that employers can claim the credit for wages paid to employees during the year 2020 even if the credit was not claimed at the time the wages were paid.