The Employee Retention Credit (ERC), also known as the Employee Retention Tax Credit (ERTC), is a refundable tax credit designed to encourage businesses to keep employees on their payroll during the COVID-19 pandemic. It was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 and has been modified and extended by subsequent legislation.
Who is Eligible for the ERC?
Businesses that meet one of the following criteria during the eligible quarters of 2020 and 2021 are generally eligible:
Significant Decline in Gross Receipts: Businesses that experienced a significant decline in gross receipts during an eligible calendar quarter compared to the same quarter in 2019. The thresholds for this decline vary between 2020 and 2021.
For 2020: A decline of more than 50% in gross receipts in a quarter compared to the same quarter in 2019.
For 2021: A decline of more than 40% in gross receipts in a quarter compared to the same quarter in 2019, or suspension of operations due to government orders.
Full or Partial Suspension of Operations: Businesses whose operations were fully or partially suspended due to government orders limiting commerce, travel, or group meetings due to COVID-19.
Certain non-profit organizations and tax-exempt organizations may also be eligible. However, businesses that received Paycheck Protection Program (PPP) loans are eligible for the ERC, but they cannot claim the ERC on the same wages that were already forgiven under the PPP. Careful tracking of wages is crucial.
How Much is the ERC?
The amount of the ERC is calculated based on qualified wages paid to employees and the applicable credit percentage:
For 2020: The credit is 50% of qualified wages paid, up to a maximum of $10,000 in wages per employee for the entire year. This results in a maximum credit of $5,000 per employee.
For 2021: The credit is 70% of qualified wages paid, up to a maximum of $10,000 in wages per employee per quarter. This results in a maximum credit of $7,000 per employee per quarter, for a potential total of $21,000 per employee for the first three quarters of 2021 (as the credit expired on September 30, 2021, unless the business is a recovery startup business).
Important Note on Wages: Qualified wages include wages paid to employees who were not furloughed and on whom the employer continued to pay wages. There are specific definitions of "qualified wages" and limitations based on the size of the employer (number of full-time employees). Employers with fewer than 100 full-time employees in 2019 generally have broader eligibility for qualified wages.
Using the ERC Calculator
This calculator helps you estimate your potential ERC refund. You will need to input your gross receipts for specific quarters in 2020 and 2019, as well as 2021 and 2020 respectively, to determine if you meet the "significant decline in gross receipts" test. You will also need to input your average employee count for those periods and the qualified wages paid.
Disclaimer: This calculator provides an *estimate* only and is not a substitute for professional tax advice. Eligibility rules for the ERC are complex, and consulting with a qualified tax professional is highly recommended to ensure accurate calculations and compliance.
Example Scenario:
Let's consider a small business, "Crafty Creations Inc.", which had a challenging year in 2020 due to pandemic-related disruptions.
Q1 2020 Gross Receipts: $100,000
Q1 2019 Gross Receipts: $250,000 (40% decline – not eligible by receipts alone for ERC in 2020)
Q2 2020 Gross Receipts: $50,000
Q2 2019 Gross Receipts: $260,000 (Approx. 81% decline – eligible for ERC in 2020)
Q3 2020 Gross Receipts: $150,000
Q3 2019 Gross Receipts: $270,000 (Approx. 44% decline – not eligible by receipts alone for ERC in 2020)
Q4 2020 Gross Receipts: $160,000
Q4 2019 Gross Receipts: $280,000 (Approx. 43% decline – not eligible by receipts alone for ERC in 2020)
Average Employees Q2 2020: 25
Qualified Wages Q2 2020: $150,000 (for all employees)
In this example, Crafty Creations Inc. was eligible for the ERC in Q2 2020 due to the significant decline in gross receipts. The credit for 2020 is 50% of qualified wages, up to $10,000 per employee. With 25 employees and $150,000 in qualified wages, the calculation would be:
Potential ERC for Q2 2020: 50% of $150,000 = $75,000.
The calculator will help determine this and for all eligible quarters and years.
#app-body {
font-family: sans-serif;
max-width: 800px;
margin: 20px auto;
padding: 20px;
border: 1px solid #ddd;
border-radius: 8px;
background-color: #f9f9f9;
}
#calculator-container {
background-color: #fff;
padding: 20px;
border-radius: 8px;
box-shadow: 0 2px 5px rgba(0,0,0,0.1);
}
#calculator-title {
text-align: center;
color: #333;
margin-bottom: 20px;
}
.input-group {
margin-bottom: 15px;
display: flex;
align-items: center;
gap: 10px;
}
.input-group label {
flex: 1;
font-weight: bold;
color: #555;
}
.input-group input[type="number"] {
flex: 1;
padding: 10px;
border: 1px solid #ccc;
border-radius: 4px;
box-sizing: border-box; /* Ensure padding and border are included in the element's total width and height */
}
#button-section {
text-align: center;
margin: 20px 0;
}
#button-section button {
padding: 12px 25px;
background-color: #007bff;
color: white;
border: none;
border-radius: 5px;
font-size: 16px;
cursor: pointer;
transition: background-color 0.3s ease;
}
#button-section button:hover {
background-color: #0056b3;
}
#result-section {
text-align: center;
margin-top: 20px;
padding: 15px;
background-color: #e9ecef;
border-radius: 5px;
}
#result-section h3 {
margin-bottom: 10px;
color: #333;
}
#result {
font-size: 24px;
font-weight: bold;
color: #28a745;
}
article {
margin-top: 30px;
line-height: 1.6;
color: #333;
}
article h1, article h2, article h3 {
color: #0056b3;
margin-bottom: 15px;
}
article ul {
margin-left: 20px;
margin-bottom: 15px;
}
article li {
margin-bottom: 8px;
}
function calculateERC() {
var q1Revenue = parseFloat(document.getElementById("q1Revenue").value) || 0;
var q1PriorRevenue = parseFloat(document.getElementById("q1PriorRevenue").value) || 0;
var q2Revenue = parseFloat(document.getElementById("q2Revenue").value) || 0;
var q2PriorRevenue = parseFloat(document.getElementById("q2PriorRevenue").value) || 0;
var q3Revenue = parseFloat(document.getElementById("q3Revenue").value) || 0;
var q3PriorRevenue = parseFloat(document.getElementById("q3PriorRevenue").value) || 0;
var q4Revenue = parseFloat(document.getElementById("q4Revenue").value) || 0;
var q4PriorRevenue = parseFloat(document.getElementById("q4PriorRevenue").value) || 0;
var q12021Revenue = parseFloat(document.getElementById("q12021Revenue").value) || 0;
var q12021PriorRevenue = parseFloat(document.getElementById("q12021PriorRevenue").value) || 0;
var q22021Revenue = parseFloat(document.getElementById("q22021Revenue").value) || 0;
var q22021PriorRevenue = parseFloat(document.getElementById("q22021PriorRevenue").value) || 0;
var employeeCountQ12020 = parseInt(document.getElementById("employeeCountQ12020").value) || 0;
var employeeCountQ22020 = parseInt(document.getElementById("employeeCountQ22020").value) || 0;
var employeeCountQ32020 = parseInt(document.getElementById("employeeCountQ32020").value) || 0;
var employeeCountQ42020 = parseInt(document.getElementById("employeeCountQ42020").value) || 0;
var employeeCountQ12021 = parseInt(document.getElementById("employeeCountQ12021").value) || 0;
var employeeCountQ22021 = parseInt(document.getElementById("employeeCountQ22021").value) || 0;
var qualifiedWagesQ12020 = parseFloat(document.getElementById("qualifiedWagesQ12020").value) || 0;
var qualifiedWagesQ22020 = parseFloat(document.getElementById("qualifiedWagesQ22020").value) || 0;
var qualifiedWagesQ32020 = parseFloat(document.getElementById("qualifiedWagesQ32020").value) || 0;
var qualifiedWagesQ42020 = parseFloat(document.getElementById("qualifiedWagesQ42020").value) || 0;
var qualifiedWagesQ12021 = parseFloat(document.getElementById("qualifiedWagesQ12021").value) || 0;
var qualifiedWagesQ22021 = parseFloat(document.getElementById("qualifiedWagesQ22021").value) || 0;
var totalERC = 0;
var eligibleWages2020 = 0;
var eligibleWages2021 = 0;
// Maximum wages per employee for 2020 is $10,000 for the entire year.
// Maximum wages per employee for 2021 is $10,000 per quarter.
// Helper function to calculate ERC for a quarter
function calculateQuarterERC(currentRevenue, priorRevenue, currentWages, maxWagesPerEmployee, is2020) {
var declineThreshold = is2020 ? 0.50 : 0.40; // 50% for 2020, 40% for 2021
var creditRate = is2020 ? 0.50 : 0.70;
var quarterERC = 0;
// Check for significant decline in gross receipts
if (priorRevenue > 0 && (currentRevenue / priorRevenue) < (1 – declineThreshold)) {
var potentialWages = Math.min(currentWages, maxWagesPerEmployee);
quarterERC = potentialWages * creditRate;
}
return quarterERC;
}
// Calculate for 2020 quarters
if (employeeCountQ12020 <= 100) { // Assuming 10000 ? 10000 : qualifiedWagesQ12020;
totalERC += calculateQuarterERC(q1Revenue, q1PriorRevenue, maxWagesQ12020, 10000, true);
} else {
// For larger employers, we need to consider specific payroll definitions, this simplified calculator assumes the provided qualified wages are correct.
totalERC += calculateQuarterERC(q1Revenue, q1PriorRevenue, qualifiedWagesQ12020, 10000, true);
}
if (employeeCountQ22020 10000 ? 10000 : qualifiedWagesQ22020;
totalERC += calculateQuarterERC(q2Revenue, q2PriorRevenue, maxWagesQ22020, 10000, true);
} else {
totalERC += calculateQuarterERC(q2Revenue, q2PriorRevenue, qualifiedWagesQ22020, 10000, true);
}
if (employeeCountQ32020 10000 ? 10000 : qualifiedWagesQ32020;
totalERC += calculateQuarterERC(q3Revenue, q3PriorRevenue, maxWagesQ32020, 10000, true);
} else {
totalERC += calculateQuarterERC(q3Revenue, q3PriorRevenue, qualifiedWagesQ32020, 10000, true);
}
if (employeeCountQ42020 10000 ? 10000 : qualifiedWagesQ42020;
totalERC += calculateQuarterERC(q4Revenue, q4PriorRevenue, maxWagesQ42020, 10000, true);
} else {
totalERC += calculateQuarterERC(q4Revenue, q4PriorRevenue, qualifiedWagesQ42020, 10000, true);
}
// Calculate for 2021 quarters (up to Q3, calculator includes Q1 & Q2 for simplicity)
if (employeeCountQ12021 <= 100) { // Assuming 10000 ? 10000 : qualifiedWagesQ12021;
totalERC += calculateQuarterERC(q12021Revenue, q12021PriorRevenue, maxWagesQ12021, 10000, false);
} else {
totalERC += calculateQuarterERC(q12021Revenue, q12021PriorRevenue, qualifiedWagesQ12021, 10000, false);
}
if (employeeCountQ22021 10000 ? 10000 : qualifiedWagesQ22021;
totalERC += calculateQuarterERC(q22021Revenue, q22021PriorRevenue, maxWagesQ22021, 10000, false);
} else {
totalERC += calculateQuarterERC(q22021Revenue, q22021PriorRevenue, qualifiedWagesQ22021, 10000, false);
}
// Format the result
var formattedERC = totalERC.toLocaleString('en-US', { style: 'currency', currency: 'USD' });
document.getElementById("ercRefund").innerText = formattedERC;
}