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What You Need to Know when Claiming Employee Retention Tax Credit

What Is Employee Retention Tax Credit?

Employee Retention Tax Credit was a scheme put in place by the US government in March 2020. It aimed to help small to medium businesses with their finances during the difficult financial period caused by the COVID-19 pandemic. With the reduction of restrictions, the scheme was closed in the later part of 2021, though it’s not too late to claim now if you feel your business is eligible.

It is a credit paid to businesses to cover a percentage of the wages that they paid out during the pandemic when their businesses needed to close or were bound by restrictions. This was to refund some of the money lost if business owners chose to pay their employees in full, despite reduced working hours in order to keep them on after the pandemic.

This scheme encouraged businesses to maintain their workforce and support the job market. It also helped many businesses get back to normal much faster after the pandemic, as there was less need to recruit or train new staff.

Which Companies Qualify for ERTC?

Employee Retention Tax Credit is paid out by the IRS if you apply as part of your tax return. It is aimed at businesses with less than 500 employees, as these were the businesses most under threat and struggling with the risk of closure. The points laid out below have been verified by ERC specialists ERC Benefits who have provided this concise detail below: –

To qualify for the credit businesses must:

  • Show that they have struggled financially and have earned at least 20% less than they were forecasted in the years 2020 and 2021 due to closures. Evidence could be provided on financial statements or via forecasting models. If the business opened in 2020, and therefore, has no previous financial statements, then a financial business plan and forecast may be sufficient.


  • Businesses must also show that they have the same number of employees as they started with. The scheme was to encourage employers to keep their staff despite the lack of work. Employers cannot claim for staff that they have let go.


  • You cannot claim a Paycheck Protection Plan and ERTC for the same employee. While businesses can claim on both schemes separately for different employees depending on which will benefit them most, the ERTC cannot be claimed for an employee for where you have already taken out PPP.

ERTC Calculations

Employee Retention Tax Credit allows you to claim $5,000 per employee for 2020 and up to $10,000 per employee per quarter in 2021 right up until quarter three.

The scheme supports up to 70% of the employee’s wage and will pay this back to the employer in a lump sum payment. This means that, in 2021, if your employee earns $40,000 per year ($10,000 per quarter), you could earn $7,000 of that money back.

Depending on how many employees your company has, this could be a huge chunk of money to invest back into the business.

How to Use ERTC

Because the scheme is specifically to assist businesses in getting back on their feet after the pandemic, the money must be reinvested. You must plan to use the money for stock, training, development or an increase in staff, or anything else that may benefit the development of your business.

You should not use this money for personal gain; vacations, a new car etc. If this is discovered, you may be asked to pay back the sum.

How to Claim ERTC

Although the scheme ended in 2021, you can still claim this money retroactively right up until 2024 depending on when you pay your taxes.

You should do this by filing Form 941-X when you file your normal returns.

How Your Accountant Can Help

Employee Retention tax Credit is an amazing scheme that has already helped countless businesses to get back on their feet after a couple of very stressful years. However, depending on how large your business is and also how savvy you are with taxes, the scheme can be a little tricky to apply for.

If you believe that your company might be eligible for ERTC, then it’s worth speaking to your accountant, tax professional or payroll preparer. They will be able to help you determine how much money you may be due and also assist in the preparation of the paperwork to file.

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