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Employee Retention Credit

Overview of Employee Retention Credit

The Employee Retention Credit part of the Coronavirus Coronavirus Aid, Relief and Economic Security (CARES) Act aims to help businesses or eligible employers to keep their employees on their payroll even when the business suspends its operations due to the COVID-19 outbreak. The tax credit would be 50 percent of the qualified wages paid by the employer to employees. In any case, the amount of qualified wages for any employees should not exceed $10,000.

What type of businesses qualify for employee retention credit?
Employers regardless of the size qualify for this credit during the calendar year 2020. And, those qualifying for this credit should have a) fully or partially suspended their business due to a governmental order on COVID-19 b) experienced a considerable decline in their gross receipts i.e., below 50% compared to the quarter 2019.

What is the qualifying employee compensation count for this credit?
The wages applicable for the credit depends on the average number of employees associated with a business in 2019.

  • If the eligible employer has less than 100 employees, then the credit is applicable for all the employee wages, regardless of whether the employee worked or not. 
  • If the eligible employer has more than 100 employees, then the credit is applicable only for wages paid to employees who did not work because of the governmental order on COVID-19.  

How is the credit amount calculated?
The credit amount is 50% of the qualified wages paid up to $10,000.