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How to Claim the Employee Retention Tax Credit – ERC

During the pandemic, lots of businesses struggled to stay open due to the pressures of lockdown and enforced opening hours. To help relieve the stress and keep small to medium businesses ticking over, the government offered a helping hand in the form of an Employee Retention Tax Credit.

What is Employee Retention Tax Credit?

Employee Retention Tax Credit was an IRS initiative that launched in Marc 2020. It allowed businesses to claim back some money on the wages that they’d paid out during the pandemic.

This was a method to maintain the job market as it allowed employers to keep paying their workforce even though they were working reduced hours.

The plan means that businesses would be able to retain the training and experience that they already had within their working environment and allowed them to get back to normal as soon as possible once their business was able to open again.  This is great news for businesses because it means that there is now significant help for those that qualify. Also, if you are unsure if you qualify or not, you can find out quickly by using an assessment company such as ERC Benefits to help you go through the painstaking process of claiming.

How to Qualify for ERTC?

To qualify for ERTC, there were certain criteria put in place. You must be a small to medium business with up to 100 employees.

  • Businesses also needed to prove that they were put at a financial detriment due to the pandemic. This would require them to display financial statements and forecasting which showed at least a 20% decrease in expected earnings over 2020 and 2021.


  • Employers were also only able to claim back money for the employees that they retained over the pandemic period. This means that, even if they aren’t the same employees throughout that time, businesses would need to show the same headcount throughout the period that they’d like to claim. The IRS will not pay out employees if the business can’t prove that it paid them.


  • Businesses that started trading during the pandemic may struggle to show an accurate financial detriment due to the lack of financial statements for the previous years. However, in some cases, they would still be able to use predicted earnings and forecast models to show that they would have been in a more positive financial position if the pandemic restrictions hadn’t hit them.

Employee Retention Tax Credit Calculation

To incentivize keeping employees on the payroll throughout the period, the ERTC payments can be claimed for as many employees as the business has, as the credit is based on individual employees, rather than the business’s turnover.

To calculate the amount of credit that your company would be due, a company will need to address the salaries of each employee.

There’s a cap in place, which is $10,000 per quarter per employee. ERTC means that you can claim up to 70% of their wage back throughout 2021.

So, if the employee is earning $40,000 per annum and were out of work for the whole of 2021, you could claim back $7,000 per quarter, totaling $28,000 for the year’s wage.

However, if the employee earned $100,000 in a normal year, you wouldn’t be able to claim the full 70%, as the wage is capped at $10,000 per quarter. In this case, you would only receive the $40,000, 40% of their annual wage – which is still a huge chunk.

How to Apply for ERTC?

There are also some parameters set in how you claim ERTC.

Firstly, if you originally took out a Paycheck Protection Loan, you won’t be able to claim ERTC on the same wages. However, that’s not to say that you can’t claim at all. As a business, if you only claimed PPP on certain wages, you can claim ERTC on others.

Despite the scheme ending in late 2021, you can still claim ERTC retroactively right up until the end of this year.

To do this, you’ll simply need to fill in Form 941-X when you declare your qualified wages with your tax return. You should also relay your related health insurance costs within this. When you file, you should bear in mind that the refund is only for the 2020 tax year and the first 3 quarters of 2021.

After this, the scheme concluded as the pandemic restrictions began to lift. Any financial difficulties after this time cannot be supplemented by the ETRC.

While Employee Retention Tax Credit is an amazing asset for struggling businesses, it can be daunting if you’re trying to file retroactively. It’s recommended that you seek professional help from a tax specialist to make sure you have everything you need. If something goes wrong, it may mean that you can’t claim.