The Employee Retention Credit (ERC) is a refundable tax credit created under the CARES Act to help businesses cover the cost of keeping their employees employed during the pandemic. This credit was designed to encourage companies to keep their staff on payroll and was available for those with 100 or fewer full-time employees. The amount of the credit was calculated based on a percentage of “qualified wages”, including health insurance costs, paid to employees. Businesses that applied for a Paycheck Protection Program (PPP) loan and were forgiven for it could be eligible for the employee retention credit with certain salaries.
Companies had until 2024 and, in some cases, 2025, to analyze their payrolls during the pandemic and apply for the credit retroactively by filing an amended tax return. The IRS has protective measures in place to prevent wage increases from being counted for the credit once the employer is eligible to receive it. The employee retention credit was a great opportunity for small businesses to receive a refundable tax credit for keeping their employees on payroll during the COVID-19 pandemic. This law increased the employee limit to 500 to determine what salaries are applicable to the credit.
However, business owners who weren't recovering startups weren't eligible for the employee retention credit for wages paid after September 31. The Employee Retention Tax Credit (ERTC) program has officially expired, but this does not affect a company's ability to apply for the ERTC retroactively. Employers should take advantage of this opportunity and analyze their payrolls during the pandemic to see if they are eligible for this refundable tax credit.