Employee Retention Tax Credit (ERTC)

Employee Retention Tax Credit is a monetary credit for small businesses, as well as large ones, who have been struggling to keep their employees. This credit has been put in place to keep employees rather than losing them because of financial hardship.

This is also to motivate people who are considering taking a new job offer elsewhere. Employees can choose to increase their income by staying with an employer rather than taking a new job.

How Does Employee Retention Tax Credit Work

The ERTC has a two-fold system.

The first is that the employee must agree to stay with their current employer for at least 24 months or more in order to qualify for the tax credit. In addition, they will be paid for each month they work within this time frame.

This means if you have an employee who has been with you for a month, they will be paid a portion of the Retention Tax Credit based on their time with your company.

There is also a second part to the ERTC. This is an additional tax credit that comes into play if you previously had employees who left your company because of financial hardship or due to another job offer.

This means if you have an employee that did not qualify for the monetary credit because they did not stay with your company long enough, but they leave the company, you can claim this ERTC on them as well.

Not only can you claim the credit on your current employees, but also for any of your former employees who did not qualify.

How to Claim Employee Retention Tax Credit 

ERTC has to be claimed through your personal income taxes. You will need to file for this credit the same way you would file for any tax credit.

You must also make sure it is clear on who you are claiming the credit, as well as how much you are claiming.

In most cases, this means claiming the credits on Form 941 which you have with your employer.

This form will break down the credit based on how much money it is for each person you are claiming.

You can also claim this tax credit through Form 940 which is a yearly tax return, which you file every year around this time.

If the person or company that you are claiming the credit for did not pay you for this credit, they will need to fill out form T1138.

This will ensure that monetary credit is deducted properly without any miscalculations.

Who Can Apply for Employee Retention Tax Credit

Only eligible employers qualify for this monetary tax credit.

To be eligible, a business must have a minimum of ten employees. There must also be a minimum amount of money being paid to each employee for this credit to qualify as well.

You also must be in their current employment status for at least 6 months. This means if you are currently working part-time and then switch to full-time, this will not count towards Employee Retention Tax Credit.

If your business is home-based with employees, the number of employees will include their family members who live with them.

Other exceptions are the tax credit is not valid for interns who are working in an internship program; this kind of credit cannot be claimed on them either.

When Should You Apply Employee Retention Tax Credit 

You can apply for ERTC as soon as you hire an employee and every month after, as long as they meet the qualifications.

This is a monthly tax credit that can be applied for each month after you hire your employees. You do not have to wait a certain amount of time between applications.

Why Should You Consider Employee Retention Tax Credit Now Instead of Later on in the Year 

The Employee Retention Tax credit per quarter is now $7,000 per employee. This means you can get up to $7,000 back each year for each employee that qualifies.

Thus, the ERC maximum credit amount per employee for the first two quarters of 2021 is $14,000.

If you have any employees who are eligible for the tax credit this year, you should take advantage of it now because the credit is much higher than last year.

Also, if you apply for the tax credit and it is declined, you will not be able to apply again the following year because the credit has to be claimed within the same fiscal year.

If you have a lot of employees, this is going to benefit you a lot. ERTC can make a world of a difference for your business if you have a large staff and the tax credits are applied consistently.

What Are the Benefits of Employee Retention Tax Credit

The Employee Retention Tax credit is a great way to keep your employees, which means less turnover and expenses associated with hiring new people.

It also helps you as an employer because if you claim the tax credit, it can positively impact how much money you owe in taxes at the end of the year. You can see a larger tax refund as a result.

This also helps the economy because it keeps your employees at their jobs, which will hopefully keep them from seeking other opportunities and finding other work to do.

Having employees who are not actively looking for another job means that they feel satisfied with what they have and this may keep them in their jobs longer.

How You Can Use This Benefit to Your Advantage in Your Company

If you have 10 employees, all with salaries up to $70,000 each the Employee Retention Tax credit for this year is $7,000 per employee. This means you can get $70,000 x 10 employees = $700,000 tax credit this year.

You can also use Employee Retention Tax credit for advertising, employee appreciation events, training programs, more staff benefits or equipment to make their jobs easier.

These are just some ways that this credit can be used. You will not only help your employees and the company’s bottom line, but you and your employees may benefit from this as well.

Final Thoughts

The Employee Retention Tax credit is a great way to keep your employees satisfied at their jobs and it can really help grow your company.

You will not only increase the productivity of your employees because you have a better workforce, but you will also see a huge jump in positive morale around the office which will lead to a better work environment.

So, ERTC can have a positive impact on your company’s bottom line as well as the productivity of your workforce.

ERTC was introduced by the government as a way to keep employees happy and also as an incentive for businesses to hire more people. This is an annual $7,000 tax credit that you can claim once per quarter, up to four times in one year and only if your company employs individuals who meet the definition of an eligible employee.
You apply for Employee Retention Tax Credit by filling out the Employee Retention Tax Credit form.
Your employees should be permanent, full-time employees who work for your company for at least 6 months.
There is no limit to how many employees you can have. Not only that, Employee Retention Tax Credits are available every single month for as long as they meet the qualifications.
No, if you want this monetary credit to work to your advantage, you should submit the tax credit form as soon as possible. This way, you can use this credit for your company's advantage and also potentially get a bigger refund at the end of the year.
True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.