Compensation

Employee Retention Tax Credit

Definition

What is Employee Retention Tax Credit?

The Employee Retention Tax Credit (ERTC) is a refundable US tax credit designed to encourage businesses to keep employees on payroll during economic hardships, such as the COVID-19 pandemic.

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A US tax credit encouraging employers to retain employees during economic hardships.

In Practice

How Employee Retention Tax Credit works?

The Employee Retention Tax Credit (ERTC) was a refundable US federal tax credit introduced as part of COVID-19 relief legislation — designed to incentivize businesses to retain employees during government-mandated shutdowns or periods of significant revenue decline. It applied to wages paid between March 2020 and September 2021 (with extended provisions for recovery startups through December 2021) and could be claimed for up to $5,000 per employee in 2020 and $7,000 per employee per quarter in 2021. The program has been significantly affected by fraudulent claims, leading the IRS to pause processing in September 2023 and enhance scrutiny of pending claims — organizations with legitimate claims filed through proper channels should expect extended processing timelines and potential audit activity.

By the numbers

Key Statistics

What the research says about employee engagement.

$80 billion

The US Treasury estimated that approximately $80 billion in ERTC claims were filed through mid-2023, with the IRS identifying a significant proportion of claims as potentially fraudulent or erroneous — triggering enhanced compliance scrutiny across all pending and paid claims.

$150,000

Legitimate ERTC claims produced average refunds of $150,000 to $250,000 for small and mid-size businesses that qualified based on government-ordered shutdowns or the specified revenue decline thresholds during the eligible periods.

15-25%

Third-party ERTC claim processors who charged contingency fees of 15 to 25 percent of refunds produced a significant proportion of problematic claims, creating potential recapture liability for employers who relied on aggressive claim preparation that overstated eligible wages.

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Also known as

Synonyms and Translations

Other ways this term appears across industries and languages.

Synonyms

ERTC

ERC

Employee Retention Credit

Translations

🇸🇦

Arabic

ائتمان ضريبي للاحتفاظ بالموظفين

🇫🇷

French

Crédit d'impôt pour la rétention des employés

🇮🇳

Hindi

कर्मचारी प्रतिधारण कर क्रेडिट

🇵🇰

Urdu

ملازم برقراری ٹیکس کریڈٹ

🇵🇭

Tagalog

Employee Retention Tax Credit

People may ask

People May Ask

Common questions about employee engagement.

What is the Employee Retention Tax Credit?

It is a refundable payroll tax credit in the US that rewards businesses for keeping employees on payroll during qualifying periods of economic disruption.

Who qualifies for the Employee Retention Tax Credit?

Businesses that experienced significant revenue decline or were subject to government-mandated shutdowns during the qualifying period, typically COVID-19 related.

How much is the ERTC worth per employee?

The credit value varied by year, reaching up to $7,000 per employee per quarter in 2021 for qualifying businesses that met eligibility criteria.

Is the ERTC still available?

The ERTC program ended for most businesses in 2021, but eligible businesses could still file amended payroll tax returns to claim retroactive credits.

Can a business claim ERTC and PPP at the same time?

Businesses could not claim ERTC on wages already covered by PPP loan forgiveness, but could claim the credit on wages not included in PPP calculations.

Employee Retention Tax Credit

What is Employee Retention Tax Credit?

How Employee Retention Tax Credit works?

Key Statistics

Synonyms and Translations

People May Ask

Related Terms