Frequently Asked Questions on the Employee Retention Credit

The Coronavirus Aid, Relief, and Economic Security (CARES) Act includes an employee retention credit for employers and nonprofit organizations. Employers can claim a payroll tax credit for 50% of wages paid by eligible employers to certain employees during the Coronavirus pandemic. Businesses and nonprofits that have fully or partially suspended operations are eligible for the employee retention credit. Employers who have experienced more than 50% reduction in quarterly receipts, measured on a year-over-year basis, can also claim the credit.

Frequently Asked Questions

The IRS has released FAQs about the employee retention credit. Here are some key points.

How is the employee retention credit calculated?

employee retention creditThe credit is 50% of qualifying wages paid, up to $10,000 in total. The maximum credit for an eligible employer for qualified wages paid to any employee is $5,000. Wages also include part of the cost of employer-provided health care.

Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit. Employers may be able to claim it for qualified wages paid as early as March 13, 2020.

What is considered “partially suspended” for the purposes of the credit?

The operation of a business is partially suspended if a government authority imposes restrictions by limiting commerce, travel or group meetings due to the Coronavirus. The business is able to continue, but operates below its normal capacity.

Is an employer required to pay qualified wages to employees?

The CARES Act doesn’t require employers to pay qualified wages.

Is a self-employed person eligible for the employee retention credit?

No. Self-employed individuals aren’t eligible for the credit for self-employment services or earnings.

Can an employer receive the tax credits for both the qualified leave wages under the Families First Coronavirus Response Act and the employee retention credit under the CARES Act?

Yes, but not for the same wages. The amount of qualified wages for which an employer can claim the employee retention credit doesn’t include the amount of qualified sick and family leave wages for which the employer received tax credits under the Families First Coronavirus Response Act.

Can an employer receive both the employee retention credit and a loan under the Paycheck Protection Program?

An employer can’t receive the employee retention credit if it receives a Small Business Interruption Loan under the Paycheck Protection Program. An employer that receives a Paycheck Protection loan can’t claim the employee retention credit.

Additional information

View all the FAQs from the IRS here.


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