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 1. Home
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 4. Coronavirus Tax Relief
 5. Employee Retention Credit


EMPLOYEE RETENTION CREDIT

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NOTICE: HISTORICAL CONTENT


This is an archival or historical document and may not reflect current law,
policies or procedures.


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DELAYS IN EMPLOYER CREDIT ADVANCE PAYMENTS

Expect payment delays until late January 2022 for Form 7200, Advance Payment of
Employer Credits. Taxpayers may continue to file Forms 7200 by facsimile until
January 31, 2022 and their applicable employment tax returns by the required due
date. Thank you for your patience during our annual system update.


 


THIS PAGE IS NOT CURRENT

See instead: New law extends coronavirus tax credit for employers who keep
workers on payroll. The Taxpayer Certainty and Disaster Tax Relief Act of 2020,
enacted December 27, 2020, amended and extended the employee retention credit
(and the availability of certain advance payments of the tax credits) under
section 2301 of the CARES Act.

Check back later for updates to this page.


EMPLOYEE RETENTION CREDIT LIMITATION

The Infrastructure Investment and Jobs Act, enacted on November 15, 2021,
amended section 3134 of the Internal Revenue Code to limit the Employee
Retention Credit only to wages paid before October 1, 2021, unless the employer
is a recovery startup business.

For more information see: IRS issues guidance regarding the retroactive
termination of the Employee Retention Credit.

The Employee Retention Credit is a refundable tax credit against certain
employment taxes equal to 50% of the qualified wages an eligible employer pays
to employees after March 12, 2020, and before January 1, 2021. Eligible
employers can get immediate access to the credit by reducing employment tax
deposits they are otherwise required to make. Also, if the employer's employment
tax deposits are not sufficient to cover the credit, the employer may get an
advance payment from the IRS.

For each employee, wages (including certain health plan costs) up to $10,000 can
be counted to determine the amount of the 50% credit. Because this credit can
apply to wages already paid after March 12, 2020, many struggling employers can
get access to this credit by reducing upcoming deposits or requesting an advance
credit on Form 7200, Advance of Employer Credits Due To COVID-19.

Employers, including tax-exempt organizations, are eligible for the credit if
they operate a trade or business during calendar year 2020 and experience
either:

 1. the full or partial suspension of the operation of their trade or business
    during any calendar quarter because of governmental orders limiting
    commerce, travel or group meetings due to COVID-19, or
 2. a significant decline in gross receipts. 

A significant decline in gross receipts begins:

 * on the first day of the first calendar quarter of 2020
 * for which an employer’s gross receipts are less than 50% of its gross
   receipts
 * for the same calendar quarter in 2019.

The significant decline in gross receipts ends:

 * on the first day of the first calendar quarter following the calendar quarter
 * in which gross receipts are more than of 80% of its gross receipts
 * for the same calendar quarter in 2019.

The credit applies to qualified wages (including certain health plan expenses)
paid during this period or any calendar quarter in which operations were
suspended.


QUALIFIED WAGES

The definition of qualified wages depends on how many employees an eligible
employer has.

If an employer averaged more than 100 full-time employees during 2019, qualified
wages are generally those wages, including certain health care costs, (up to
$10,000 per employee) paid to employees that are not providing services because
operations were suspended or due to the decline in gross receipts. These
employers can only count wages up to the amount that the employee would have
been paid for working an equivalent duration during the 30 days immediately
preceding the period of economic hardship.

If an employer averaged 100 or fewer full-time employees during 2019, qualified
wages are those wages, including health care costs, (up to $10,000 per employee)
paid to any employee during the period operations were suspended or the period
of the decline in gross receipts, regardless of whether or not its employees are
providing services.


IMPACT OF OTHER CREDIT AND RELIEF PROVISIONS

An eligible employer's ability to claim the Employee Retention Credit is
impacted by other credit and relief provisions as follows:

 * If an employer receives a Small Business Interruption Loan under the Paycheck
   Protection Program, authorized under the CARES Act, then the employer is not
   eligible for the Employee Retention Credit.
 * Wages for this credit do not include wages for which the employer received a
   tax credit for paid sick and family leave under the Families First
   Coronavirus Response Act.
 * Wages counted for this credit can't be counted for the credit for paid family
   and medical leave under section 45S of the Internal Revenue Code.
 * Employees are not counted for this credit if the employer is allowed a Work
   Opportunity Tax Credit under section 51 of the Internal Revenue Code for the
   employee.


CLAIMING THE CREDIT

In order to claim the new Employee Retention Credit, eligible employers will
report their total qualified wages and the related health insurance costs for
each quarter on their quarterly employment tax returns, which will be Form 941
for most employers, beginning with the second quarter. The credit is taken
against the employer's share of Social Security tax but the excess is refundable
under normal procedures.

In anticipation of claiming the credit, employers can retain a corresponding
amount of the employment taxes that otherwise would have been deposited,
including federal income tax withholding, the employees' share of Social
Security and Medicare taxes, and the employer's share of Social Security and
Medicare taxes for all employees, up to the amount of the credit, without
penalty, taking into account any reduction for deposits in anticipation of the
paid sick and family leave credit provided in the Families First Coronavirus
Response ActPDF. 

Eligible employers can also request an advance of the Employee Retention Credit
by submitting Form 7200.


MORE INFORMATION

 * COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and
   Midsize Businesses FAQs
 * Employee Retention Credit Under the CARES Act FAQs
 * Paycheck Protection Program
 * COVID Tax Tip 2020-47, Common errors to avoid when filing for advance payment
   of employer credits

This page is designated as historical and is no longer updated. Page Last
Reviewed or Updated: 23-Aug-2022
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