Employee retention tax credits are a refundable tax credit (equal up to 50% of qualified wages) designed to help businesses retain employees during the social distancing mandate. For each employee, wages up to $10,000 can be counted to determine the amount of the 50% credit In the following article, Optima Tax Relief reviews the guidelines for employee retention credit eligibility.

In an effort to help businesses that have either closed or have significantly reduced their day-to-day staff and operations in response to the COVID-19 outbreak, the Treasury Department and the Internal Revenue Service deployed the Employee Retention Tax Credit. This is a provision that allows employers to receive a 50 percent tax credit for up to $10,000 of qualified wages per employee. This tax credit is offered as a part of The Families First Coronavirus Relief Act (FFCRA).

Businesses of all sizes – including organizations that are tax-exempt – might be eligible for the tax credit. Exceptions include small businesses that are taking Small Business Interruption Loans under the Paycheck Protection Program as well as state and local governments and any of their instrumentalities. Employers who qualify for the tax credit will meet either of the following criteria:

  1. The business’s operations must be at least partially halted by governmental order as a result of the COVID-19 outbreak throughout the financial quarter.
  2. The gross receipts during the financial quarter must be under 50 percent of the previous year’s receipts during a comparable quarter.

If and when an eligible employer’s gross receipts reach 80 percent of their 2019 receipts during a comparable quarter, that employer will no longer be eligible.

Employee compensation paid between March 12, 2020 and January 1st, 2021 is eligible for the employee retention credit. Compensation in the form of employer-provided healthcare benefits is also factored into qualifying wages.


Businesses with fewer than 100 employees in 2019 may claim a tax credit for all employees regardless of whether or not they worked full or part-time during the shutdown. Businesses with 100 or more employees in 2019 are permitted to claim the tax credit only for compensation to employees who were unable to work during the quarter.

Employers may receive their tax credit by reducing the payroll tax deposits by the credit amount at the beginning of the second quarter. Employers also have the option of receiving a payment from the IRS if the amount of the employment tax deposits do not cover the tax credit.

For more information about the Employee Retention Tax Credit, please visit the IRS.gov/coronavirus page or the IRS FAQ page.

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