The Employee Retention Credit (ERC) is a payroll tax credit established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which became effective Mar. 27, 2020. The ERC applies to eligible employers:
- That continued to pay qualified wages to employees during a period in which operations were fully or partially suspended as a result of a government order related to the COVID-19 pandemic or
- Who’s business experienced a more than 50 percent decline in gross receipts during a quarter in 2020.
Initially, the ERC was equal to 50 percent of qualified wages with a maximum credit of $5,000 per employee. Additionally, the ERC was not available for those who were recipients of loans under the Paycheck Protection Program (PPP).
The Consolidated Appropriations Act (CAA), enacted on Dec. 27, 2020, enhanced the Employee Retention Credit program for both 2020 and 2021. The enhanced ERC has several retroactive and prospective changes, including availability of the program for PPP loan recipients, loosened guidelines for eligibility and a more substantial maximum credit amount for 2021.