Employee Retention Credit

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The Employee Retention Credit, is designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.

Eligible employers are employers that carry on a trade or business during calendar year 2020, including tax-exempt organizations, that either

  • Fully or partially suspend operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
  • Experience a significant decline in gross receipts during the calendar quarter.

Neither governmental employers are not eligible for this credit. Self-employed individuals not eligible for this credit for their own self-employment earnings, though they may be able to claim the credit for wages paid to their employees.

For more information on which employers are eligible go HERE 

The amount of the credit is 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit. Wages taken into account are not limited to cash payments, but also include a portion of the cost of employer provided health care.

Qualified wages are wages and compensation paid to some or all employees after March 12, 2020, and before January 1, 2021. This includes qualified health plan expenses. Qualifying wages are partially based on the average number of a business’s full-time employees in 2019.
  • Employers with more than 100 full-time employees in 2019: qualified wages are the wages paid to an employee for time that the employee is not providing services due to either:
    • a full or partial suspension of operations by order of a governmental authority due to COVID-19,
    • or a significant decline in gross receipts (less than 50 percent of gross receipts for the same calendar quarter in 2019.)
  • Qualified wages may not exceed what the employee would have been paid for working an equivalent duration during the 30 days immediately prior to the suspension of operations or decline in gross receipts.
  • Employers with less than 100 full-time employees in 2019: qualified wages are the wages paid to any employee during suspension of operations or decline in gross receipts.
For more information on qualifying wages go HERE

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

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

Updates on the implementation of this credit,  Frequently Asked Questions on Tax Credits for Required Paid Leave and other information can be found on the Coronavirus page of IRS.gov.

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Virginia SBDC