The Employee Retention Credit (ERC) is a valuable tax credit offered by the IRS to assist small businesses in retaining their employees during challenging economic conditions, such as those caused by the COVID-19 pandemic. While the ERC can provide much-needed relief to eligible businesses, it’s important to understand whether there is a limit on the amount of credit that can be claimed.
Background on the ERC
The ERC was introduced as part of the CARES Act in March 2020 and has been expanded and modified several times since then. The credit is designed to help eligible businesses retain employees by providing a refundable tax credit of up to 70% of qualified wages paid to employees, up to a maximum credit of $5,000 per employee per calendar quarter.
You may like to read the ERC FAQ.
Is There a Limit on the ERC That a Business Can Claim?
Yes, there is a limit on the amount of ERC that a business can claim. The limit depends on the eligibility criteria and the time period for which the credit is being claimed.
For the first and second quarters of 2021, eligible businesses can claim a maximum credit of $7,000 per employee per calendar quarter, up to a maximum of $14,000 per employee for the entire period. This is an increase from the $5,000 per employee per calendar quarter limit in 2020.
For the third and fourth quarters of 2021, eligible businesses can claim a maximum credit of $7,000 per employee per calendar quarter, up to a maximum of $28,000 per employee for the entire period. This is another increase from the earlier periods.
It’s important to note that the maximum credit is based on qualified wages paid during the applicable calendar quarter, and not all wages paid to employees are eligible for the credit. Additionally, the credit cannot be claimed for the same wages that were used to claim other COVID-19 related tax credits, such as the Paid Sick Leave Credit or the Paid Family Leave Credit.
Must check the Employee Retention Credit FAQs to understand it better!
Conclusion
While the Employee Retention Credit can provide valuable relief to eligible businesses struggling to retain their employees during the pandemic, it’s important to understand the limits on the amount of credit that can be claimed. By staying informed and understanding the eligibility criteria and limitations of the ERC, businesses can maximize their relief and ensure that they are claiming the credit correctly.
