What is the Maximum Employee Retention Tax Credit?



The Employee Retention Tax Credit (ERTC) is a federal payroll tax credit for U.S. employers. It was created as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help businesses affected by COVID-19 cover some of their labor costs. The ERTC is designed to reward businesses that have been unable to operate fully or are experiencing a sharp decline in revenues due to the pandemic.

The ERTC allows eligible employers to receive a refundable payroll tax credit equal to 50% of qualifying wages paid during each quarter in 2020 after March 12, 2020 and before January 1, 2021. Eligible wages must not exceed an overall cap of $10,000 per employee or $5,000 per employees’ half-year salary, prorated for part-time employees. This makes the maximum annual employee retention tax credit for any single employee $20,000 for the year 2020 ($10K/quarter). This maximum would be split between employer and employee with employer receiving up to $10K in credits if their qualified wages reach that amount over the course of 4 quarters combined.

What is the Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC) is a tax incentive that encourages employers to keep their workforce intact during the COVID-19 crisis. For employers to be qualified, they must have experienced a significant decline in business due to the pandemic.

The amount of the credit can range up to $5,000 per employee and there is a maximum of $28,000 in tax credits per employer. Let’s take a look at the details of the credit.

What Qualifies for ERTC

The Employee Retention Tax Credit (ERTC) is a tax incentive created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help employers who were affected financially by the 2020 coronavirus pandemic. The ERTC provides eligible businesses with a 50% tax credit of up to $5,000 for every worker retained through 2020. The exact amount of each business’ credit depends on their repayment wages and health care costs during the period between March 13, 2020 and December 31,2020.

When determining if an employer is eligible for a full or partial ERTC credit, several criteria must be met. To qualify for the ERTC credit:

  • The business must have experienced either a full or partial suspension of their operations due to governmental orders related to COVID-19 or have experienced a significant decline in gross receipts.
  • The credit can be claimed for employees employed during any calendar quarter in 2020 whose wages are not more than $10,000 per quarter per employee and who are not covered by section 3121(A) of the Internal Revenue Code.
  • Eligible employers must provide paid leave wages to an employee beyond what is required by certain paid leave benefits established under the Families First Coronavirus Response Act (FFCRA), including nursing mothers.

Apart from these eligibility requirements, there are further rules that make some employers ineligible for this credit such as government entities; health care organizations; certain tax exempt organizations; households other than farms; employers receiving funds from Paycheck Protection Program loans; employers where more than 50% of gross receipts come from unrelated trade or business activities; and any trades or businesses that fail to meet filing requirements). Furthermore, businesses may be disqualified if they reduce their workforce size or pay rates after February 15,2020 in order for their employees to qualify for the tax credit.

Eligibility Requirements

The Employee Retention Tax Credit (ERTC) was established in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It is a refundable tax credit for employers who have either partially or fully suspended operations due to orders related to COVID-19, or experienced a significant decline in gross receipts of more than 50%.

Employers may be eligible for the ERTC if they meet certain criteria.

Eligibility Requirements:

  • Employer must be carrying on a trade or business during calendar year 2020
  • Employer experienced either full or partial suspension of operation due to orders related to COVID-19 issued by government authorities beginning March 13, 2020 or experienced significant decline in gross receipts (more than 50%) during a calendar quarter compared with the same calendar quarter in 2019
  • Eligible employers qualify for up to a maximum credit equal to 50 percent of qualified wages paid up to $10,000 per employee; employers with fewer than 100 full-time employees averaged over 2019 and 2020 are allowed up to $5,000 per employee qualified wages
  • Qualified wages are those paid after March 12, 2020 and before January 1, 2021 that are not taken into account for other credits included in ERTC such as Work Opportunity Credit; the wage limitation does not apply for leave pursuant to FFCRA
  • For employers who have fewer than 500 employees including full time and part time employees who work an aggregate number of hours equal to at least 500 persons regardless of their location

Maximum Benefit

The Employee Retention Tax Credit (ERTC) is a refundable tax credit available to companies that were fully or partially suspended due to orders from government authorities relating to COVID-19, and to employers with gross receipts that declined over any quarter in 2020 relative to either the same quarter in 2019 or the corresponding quarter of 2020. The maximum benefit available is up to $28,000 per employee for the full year.

Businesses meeting the eligibility criteria may qualify for a credit of 40% on wages paid up through December 31, 2021 up to $10,000 annually per employee for wages earned during this period. Maximum credit amount per employee per year is $5,000 for Quarter 1 (January 1 – March 31), $5,000 for Quarter 2 (April 1 – June 30), and an additional $8,000 for Quarter 3 (July 1 – September 30). For Quarter 4 beginning October 1st, businesses can apply their previously claimed wages through September 30th or look forward and claim the remaining portion of wages in 2021. The credit cannot exceed what was previously claimed in previous quarters plus any claimed through September 30th.

Furthermore, self-employed individuals are also eligible under this program; they may receive a maximum benefit amount of taxes equal to 50% of qualified health plan expenses paid above normal expenses during the period beginning January 1st – December 31st 2021. Additionally, they may be eligible to receive up to 20% on net income up until December 31st 2020 if their business saw a decrease in gross receipts due COVID-19 related governmental orders. Employers should consult with their tax advisor regarding eligibility and applicable availability restrictions.

How to Claim ERTC

The Employee Retention Tax Credit (ERTC), is a tax provision designed to help businesses retain and support their employees, even when business income decreases due to the coronavirus pandemic. The ERTC offers eligible employers a refundable tax credit of up to $5,000 per qualified employee.

This article will explain how to claim this tax credit:

Filing for ERTC

Employers who are eligible to receive the Employee Retention Tax Credit (ERTC) must apply for the credits in a timely manner. To do so, employers must fill out and submit IRS Form 941-X or an equivalent form for each quarter that they wish to claim the credit. Employers claim the ERTC on Form 941-X, on line 14G or 14H for those quarters specified by the employee that received the tax credit.

In addition to Form 941-X, employers may be required to submit additional documents such as payroll records and job records to show which employees have qualified for the ERTC. It is important for employers to retain all relevant documentation necessary for filing ERTC claims.

The maximum ERTC benefit that an employer can receive is $5,000 per employee based on wages paid during each quarter in 2020 and 2021 up to $10,000 total over both years combined. It is important to note that if an employer’s claimed amount exceeds their actual payout amount, they will be required to repay the excess. Therefore, it is extremely important that employers file correct information when applying for this tax credit.

Other Considerations

When claiming ERTC, employers need to be aware that some other considerations may affect their total credit. These include:

  • Certain employees and wages are excluded from the formula. These include wages paid to specified individuals, past services wages and wages taken into account for a different credit such as Work Opportunity Tax Credit (WOTC).
  • Previously paid wages are excluded if the employer has recognized either an income or a payroll tax deduction for those wages.
  • Employer contributions on behalf of employees will not count towards the credit.
  • There is a limit on the amount of credit that can be claimed relative to an employer’s prior year Social Security taxes paid, based on payroll frequency. The credit amount must be reduced dollar-for dollar once this limit is exceeded.
  • An allowable tax deduction must not be taken for any of the qualified wages taken into account for calculating ERTC.


In conclusion, the maximum employee retention tax credit for 2020 is 50% of wages up to $10,000 for each employee for a total of $5,000 per eligible employee. This benefit is designed to assist businesses affected by COVID-19 in retaining their staff during these exceptionally difficult times.

Businesses should consult with a tax professional or review IRS documentation to determine whether they are eligible to receive this tax credit and understand its implications. Businesses should keep accurate records of employee wages and retain all necessary documentation in order to secure the benefits offered under the Employee Retention Tax Credit.

By following the guidelines outlined in this article, businesses can ensure that they are taking advantage of every available option to assist them as they continue operations during these unprecedented times.