The Employee Retention Tax Credit Helps Keep Workers Working
The credit is worth up to $5,000 per paid employee for businesses financially harmed by the coronavirus pandemic that continue to keep employees on the payroll.
 
 
Congress is relying in part on tax relief to help boost the U.S. economy dragged down by the coronavirus pandemic. Take, for example, the employee retention tax credit (ERTC), a federal payroll tax break available to businesses economically hurt by the coronavirus crisis but continue to keep employees on the payroll. It was enacted as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Eligible employers
The credit of up to $5,000 per paid employee offsets the employer's 6.2% share of Social Security taxes, with the excess refundable. Eligible employers are those who have had to shut down or reduce hours because of a government order, or whose gross receipts in a quarter have declined by over 50%, compared with the same quarter in 2019.
Charities and other tax-exempt organizations qualify for the credit. State and local governments, as well as the federal government, do not qualify. Employers that received a loan under the Small Business Administration's Paycheck Protection Program are currently not eligible for the ERTC.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
 
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Amount of the credit
The credit is 50% of up to $10,000 in qualified wages per employee. "Qualified wages" are wages paid from March 13 through Dec. 31, 2020, and depend on the number of employees the business had in 2019.
For firms averaging more than 100 employees in 2019, qualified wages are wages paid to employees only for the time they did not work. For smaller firms, all wages paid to employees are qualified wages, regardless of whether the employees worked or not.
Qualified wages also consist of employer-provided health care, including the employer's cost of health coverage for unpaid, furloughed workers.
(Note the IRS initially said the cost of employer health insurance for unpaid, furloughed workers isn't included in qualified wages, but changed that view after getting pressure from congressional taxwriters).
Qualified wages don't include wages computed in figuring the payroll tax credit for small employers that provide mandated paid sick or family leave to workers affected by the COVID-19 virus.
Claiming the credit
As mentioned above, the ERTC offsets the employer's 6.2% share of Social Security taxes, with the excess refundable. Employers claim the credit on their quarterly Form 941, and they have two ways of quickly taking advantage of the break before they even file the 941.
First, they can reduce employment tax deposits otherwise owed to the IRS by the amount of the ERTC the business qualifies for. Employment taxes that can be reduced include (1) withheld federal income tax from employee wages, and (2) the employees' and employer's shares of Social Security and Medicare taxes.
Second, if the credit exceeds employment tax deposits, then employers can seek advance payments for the excess by filing new IRS Form 7200. Employers can fax the form to the IRS at 855-248-0552. When employers file their quarterly Form 941, they will need to reconcile the ERTC with any reduced deposits and/or advance payments they received.
There are lots of rules and complexities involved with the ERTC. The IRS has provided online guidance on this credit in a set of FAQs covering various topics.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to kiplinger.com and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.
- 
 The Original Property Tax Hack: Avoiding The ‘Window Tax’ The Original Property Tax Hack: Avoiding The ‘Window Tax’Property Taxes Here’s how homeowners can challenge their home assessment and potentially reduce their property taxes — with a little lesson from history. 
- 
 Is Mint Mobile's Home Internet a Game-Changer or Just Another Option? Is Mint Mobile's Home Internet a Game-Changer or Just Another Option?Mint Mobile recently unveiled its new home internet service. We break down how it works so you can determine if it's a great value for your needs. 
- 
 The Original Property Tax Hack: Avoiding The ‘Window Tax’ The Original Property Tax Hack: Avoiding The ‘Window Tax’Property Taxes Here’s how homeowners can challenge their home assessment and potentially reduce their property taxes — with a little lesson from history. 
- 
 Three Critical Tax Changes Could Boost Your Paycheck in 2026 Three Critical Tax Changes Could Boost Your Paycheck in 2026Tax Tips The IRS predicts these tax breaks may change take-home pay in 2026. Will you get over $1,000 in tax savings? 
- 
 RMDs, Roth, and SS: Test Your Knowledge of Retirement Tax Rules RMDs, Roth, and SS: Test Your Knowledge of Retirement Tax RulesQuiz Don't let the IRS catch you off guard. Take our quiz to reveal common retirement tax rules that could save (or cost) you thousands. 
- 
 What’s the New 2026 Estate Tax Exemption Amount? What’s the New 2026 Estate Tax Exemption Amount?Estate Tax The IRS just increased the exemption as we enter into a promising tax year for estates and inheritances. 
- 
 IRS Updates 2026 Tax Deduction for People Age 65 and Older IRS Updates 2026 Tax Deduction for People Age 65 and OlderTax Changes Adjustments to the extra standard deduction can impact the tax bills of millions of older adults. Here are some new amounts to know for 2026. 
- 
 IRS Reveals New 2026 Child Tax Credit and other Family Credit Amounts IRS Reveals New 2026 Child Tax Credit and other Family Credit AmountsTax Credits Key family tax breaks are higher for 2026, including the Earned Income Tax Credit and the Adoption Credit. Here's what they're worth. 
- 
 Standard Deduction 2026 Amounts Are Here Standard Deduction 2026 Amounts Are HereTax Breaks What is the standard deduction for your filing status in 2026? 
- 
 Claiming the Standard Deduction? Here Are Five Tax Breaks for Retirement in 2025 Claiming the Standard Deduction? Here Are Five Tax Breaks for Retirement in 2025Tax Tips If you’re retired and filing taxes, these five tax credits and deductions could provide thousands in relief (if you qualify).