Employee Retention Credit: Is it a Cash Refund?

The Employee Retention Credit (ERC) is a fully refundable tax credit for employers that was approved under the CARES Act as an incentive to keep their employees on the payroll and without receiving unemployment compensation. This law increased the employee limit to 500 to determine what salaries are applicable to the credit. Companies can no longer pay salaries to apply for the employee retention tax credit, but they have until 2024 and, in some cases, 2025, to analyze their payrolls during the pandemic and apply for the credit retroactively by filing an amended tax return. The IRS published a series of frequently asked questions about the employee retention credit available as part of the recently published CARES Act.

The notice includes guidance on how employers who received a PPP loan can retroactively apply for the employee retention tax credit. The IRS has protective measures to prevent wage increases from being counted for the credit once the employer is eligible to receive the employee retention credit. Employers with 100 or fewer full-time employees can use all the salaries of employees who work, as well as any paid time that they are not working, with the exception of paid vacation provided under the Families First Coronavirus Response Act. People who have more than 100 full-time employees can only use the qualified salaries of employees who do not provide services due to the suspension or decline of business activity.

The Employee Retention Tax Credit (ERTC) program has officially expired, but this does not affect a company's ability to apply for the ERTC retroactively. The employee retention tax credit is a program of the federal government and the Internal Revenue Service (IRS). It is equivalent to 50 percent of qualified wages (including allocable qualified health plan expenses) that eligible employers pay to their employees. The employee retention credit under the CARES Act encourages companies to keep employees on their payroll.

If a customer has applied for a PPP loan and will be forgiven for it, they can now be eligible for the employee retention credit with certain salaries.