The COVID-19 pandemic has had a significant impact on businesses worldwide, and many have had to make difficult decisions such as furloughing employees, reducing work hours, and even laying off staff. However, the Employee Retention Credit (ERC) is a tax credit that aims to encourage employers to keep employees on their payroll during the pandemic by providing financial assistance.

The ERC was introduced as part of the CARES Act in March 2020 and has since been extended and expanded under subsequent COVID-19 relief legislation. The credit is available to eligible employers who have experienced a significant decline in gross receipts or have been subject to a full or partial suspension of their operations due to government orders during the pandemic.

To be eligible for the ERC, employers must meet certain criteria, such as having fewer than 500 employees and experiencing a significant decline in gross receipts. The credit is worth up to 70% of eligible wages paid to employees, up to a maximum of $10,000 per employee per quarter. This means that an employer could potentially receive up to $28,000 in tax credits per employee for 2021.

One of the key benefits of the ERC is that it is a refundable tax credit, which means that eligible employers can receive the credit as a refund if the amount of the credit exceeds the employer's payroll tax liabilities. This is particularly beneficial for small and medium-sized businesses that may not have significant payroll tax liabilities but still require financial assistance.

For most businesses, the ERC concluded on September 30, 2021, meaning that only the first three quarters can be taken into account. However, recovery startup businesses that commenced operations after February 15, 2020, and receive less than $1 million in annual gross receipts, can also claim the credit for the final quarter.

While it was possible to claim the ERC on your original Form 941, the Employer's Quarterly Federal Tax Return, when submitting your quarterly tax returns, this is no longer possible as the program has ended. Nevertheless, you can still claim the ERC retroactively by utilizing Form 941-X, the Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund.