The Full List of Criteria for Employee Retention Credit Eligibility

99.9% of all firms in the US are small businesses or 32.5 million of them. When the pandemic hit the US in March 2020, 70% of all small firms had to temporarily close.

The federal government provided many financial support options in the months and years that followed to assist small enterprises in surviving the pandemic.

One of them was the tax credit for staff retention offered to businesses. The eligibility for employee retention credits recently underwent certain adjustments.

You should make sure that, as a small business, you’re utilizing all of the federal government’s financial opportunities.

IRS Tax Credit Programs?

The fact that the federal government is essentially handing money to small firms may come as a surprise. This was accomplished by the Employee Retention Credit or ERC.

Providing a tax credit on business taxes, was a tool to assist small firms in overcoming the pandemic’s obstacles.

Companies could:

  • Benefit from lower federal employment tax deposits.
  • For amounts that cannot be covered by deposit reductions, request tax-credit advances.
  • While several Covid relief initiatives attracted a lot of attention, many firms are less familiar with the ERC. You don’t want to blow the opportunity to benefit from these tax credits.

An Employee Retention Credit Is What?

To begin, let’s review the fundamentals of employee retention credit and how it functions for small firms. In exchange for some employment taxes that a small firm has to pay, the ERC grants a refundable payroll tax credit.

A company is often required to deposit employment taxes with the IRS regularly. On those tax deposits, the ERC permits an immediate credit.

Credit for Initial Employee Retention

To better grasp the current legibility, it’s also crucial to comprehend the original ERC requirements.

The ERC was accessible to little companies that:

  • Displayed qualifying pay for companies with fewer than 100 full-time workers
  • Due to shutdown instructions relating to COVID, operations were halted.
  • Gross receipts for the quarter fell by 50%.

A company could not use ERC in its first form if it utilized the Payroll Protection Program or PPP.

Eligibility for Employee Retention Credit Now in 2023

Now let’s examine the 2022 ERC eligibility. On December 31, 2020, the initial ERC came to an end.

Now that the deadline has been extended, small firms may include eligible wages paid between January 1 and December 31, 2021.

Some substantial modifications to ERC include:

  • Fewer than 500 FTE workers. Previously, there were just 100 or fewer workers.
  • Still, be either totally or partially suspended as a result of a shutdown order.
  • Experienced a qualifying drop in gross sales

Other alterations consist of:

  • The former 50% fall in quarterly gross sales was reduced to a 20% decline.
  • If supply chain problems resulted in a halt to business activities, they were added.
  • Even if other salaries were not paid, group health plan costs are now considered “qualified earnings.”

When a corporation performs an ERC calculation, the pre-tax health benefit expenditures for employees who were furloughed during the pandemic but still got those benefits will figure as a qualified health expense.

Payroll Protection Program and Employee Retention Credit

Through the 2020 CARES Act, several firms were able to benefit from the Payroll Protection Program (PPP). Small firms who utilized PPP could not additionally use the ERC as a result of the CARES Act.

This is one significant ERC change that small businesses should be aware of. So, any wages that aren’t paid using PPP money now qualify for ERC credits. It’s also important to note that this adjustment is retroactive. It follows that many companies that qualify for refunds of payroll taxes that were already submitted in 2020 are probably among them.

What Distinguishes PPP from ERC?

Even though the PPP and the ERC are both created by the federal government, there are some significant distinctions between the two initiatives.

The PPP has financial restrictions based on what was offered by the federal government. The ERC had no restrictions. Benefits are offered to businesses that meet the requirements.

There is a loan called the PPP that can be forgiven. Instead, the ERC is a payment made by the IRS directly to businesses in the form of credit.

It’s important for enterprises that benefited from the PPP under the CARES Act because they can now retrospectively apply ERC for credits of wages not paid under the PPP.

What Credits Are Available to Businesses?

You might be curious about the value of credit to your company. Keep in mind that the goal of employee retention affects how and when the employee received payment for the qualifying years.


The ERC tax credits were extended by the American Rescue Plan through the end of 2021.

In 2021, 70% of the permitted amount for eligible pay is available each quarter. The maximum compensation is set at $10,000 per quarter in 2021.

Owners and members of their families who control at least 50% of the company are the only people who are not eligible for this credit.


A credit of up to $10,000 can be applied to eligible wages between March 13, 2020, and December 31, 2020. So, the maximum tax credit for 2020 is $5,000 per employee for the entire year.

It’s critical to recognize the difference between qualified earnings. It comprises wages as well as contributions made each quarter to cover medical expenses.

Use the Employee Retention Credit Eligibility to Your Advantage

Being informed of the employee retention credit eligibility for small businesses could be a crucial credit as a company prepares for the 2022 tax season.

For the 2020 and 2021 tax years, more businesses will be able to benefit from these tax credits because of changes to the ERC.

Contact Your Part Time Accountant right away to learn more and to receive the answers to your questions about the ERC and how it might help your company.