employee retention credit

The Employee Retention Credit: A Federal Tax Incentive for Business Continuity and Workforce Retention

By Brian Wallace

The Employee Retention Credit (ERC) is a federal tax credit available for businesses in the United States. Unlike a loan, it is a refundable credit that does not require repayment. The purpose of the ERC is to incentivize employers to retain employees on payroll during the COVID-19 pandemic. 

The ERC program officially ended in 2021, but businesses can still file to receive funds. This credit was introduced to assist businesses in recovering from the economic shutdown in 2020, offset lost revenue caused by the pandemic, and maintain their workforce and operations. 

To qualify for the ERC, businesses must meet four conditions. Firstly, they must be operating in the United States, regardless of their size. Secondly, they should have experienced a decline in revenue due to COVID-19. Thirdly, they should have faced a full or partial suspension by government authorities, resulting in limited business hours or a reduced workforce. Lastly, businesses can also qualify as a recovery startup in the third or fourth quarter of 2021.

In 2023, most businesses claim the ERC by amending their tax filings. It typically takes the IRS an average of 4-10 months to process ERC claims and issue checks.

What Is Employee Retention Credit?