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Employee Retention Credit: What are Qualified Wages?

As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the federal government created the Employee Retention Credit (ERC). The ERC allows eligible employees to receive a fully refundable tax credit for “qualifying wages” paid to employees in the final three quarters of 2020 and/or the first three quarters 2021. At ERC Guaranteed, we help businesses know how to calculate the ERC. In this article, you will find a comprehensive overview of the key things to know about the ERC and qualified wages. 

Qualified Wages are Used to Calculate the Employee Retention Credit

Qualified wages are used as a baseline to determine an applicant’s ERC tax credit. For employers with fewer than 100 full-time workers on average, the Internal Revenue Service (IRS) explains that qualified wages are “the wages paid to any employee during any period in the calendar quarter in which the business operations are fully or partially suspended due to a governmental order.” In other words, all employee wages that are FICA taxes (payroll taxes) are qualified wages as long as the company was subject to a federal, state, or local government order that fully or partially suspended operations. 

Important Point: The CARES Act interprets governmental order partial suspensions in a broad manner given all the ways different industries were affected. Virtually every business in the United States was subject to such an order. Examples include capacity reductions, social distancing requirements, enhanced cleaning & sanitizing standards, work-from-home guidance, and more. 

Understanding the Maximum ERC Tax Credit Per Employee

There is a maximum ERC benefit for each qualifying employee. Here is an overview of the maximum available ERC tax credit by quarter: 

  • 2020: A maximum credit of $5,000 per employee for all of 2020.  
  • 2021: A maximum credit of $7,000 per quarter, per employee for the first three quarters of 2021.

In other words, up to $26,000 per employee may be available through the ERC credit. For many businesses, the ERC is worth three to seven times more than their PPP benefits. 

Businesses Can Still Qualify for the Employee Retention Credit

It is not too late to claim the Employee Retention Credit for 2020 or 2021. Pursuant to federal law, the IRS allows employers to file an amended tax return. You can still claim the full ERC benefit for all six quarters across 2020 and 2021. Even if you already filed your business tax return, there is still time to adjust them to claim your ERC. ERC Guaranteed can review the qualifying wages that have been paid to employees in 2020 and 2021 to help you claim the maximum ERC. 

ERC Guaranteed Helps Clients Maximize their ERC—Guaranteed

At ERC Guaranteed, we specialize in the Employee Retention Credit. If you have any questions about qualified wages or how to calculate your ERC refund, our specialists are more than ready to help. Give us a phone call at 1-888-210-8870 or send us a direct message to set up a confidential initial appointment. We help businesses nationwide secure the maximum ERC benefit.