Employee Retention Credit (ERC): Wage and Employee Limits for Eligibility

The Employee Retention Credit (ERC) is a valuable tax credit offered by the IRS to assist small businesses in retaining their employees during challenging economic conditions, such as those caused by the COVID-19 pandemic. While the ERC can provide much-needed relief to eligible businesses, it’s important to understand the wage and employee limits for eligibility.

Background on the ERC

The ERC was introduced as part of the CARES Act in March 2020 and has been expanded and modified several times since then. The credit is designed to help eligible businesses retain employees by providing a refundable tax credit of up to 70% of qualified wages paid to employees, up to a maximum credit of $7,000 per employee per calendar quarter for the first two quarters of 2021 and $7,000 per employee per quarter for the third and fourth quarters of 2021.

You may like to read the ERC FAQ.

Wage Limits for ERC Eligibility

To be eligible for the ERC, a business must have experienced a significant decline in gross receipts or been subject to a full or partial suspension of operations due to a government order related to COVID-19. Once a business meets this eligibility criteria, it must then determine which wages paid to its employees are eligible for the credit.

For businesses with 500 or fewer employees, all wages paid to employees during the eligible period can be considered for the credit. However, for businesses with more than 500 employees, only wages paid to employees who are not providing services can be considered. In other words, wages paid to employees who are not working due to a furlough, reduction in hours, or suspension of operations are eligible for the credit, but wages paid to employees who are working are not eligible.

Must look at the ERTC FAQ to better comprehend it!

Employee Limits for ERC Eligibility

There is no employee limit for claiming the ERC. All eligible employees who meet the wage eligibility criteria can be considered for the credit, regardless of the number of employees a business has.

Conclusion

The Employee Retention Credit can provide valuable relief to eligible businesses struggling to retain their employees during the pandemic. By understanding the wage and employee limits for eligibility, businesses can determine which wages paid to employees are eligible for the credit and maximize their relief.